Kris Stewart, Principal regulatory consultant and director, Compliance Professional Services
With implementation of new requirements around TILA-RESPA Integrated Disclosures (TRID) at hand, it is instructive for lenders to appreciate just how much variance can occur in the look and feel of the disclosure documents used for each transaction.The integrated disclosure rule requires lenders’ new disclosures— the Loan Estimate and the Closing Disclosure— to contain information specific to each requested transaction. This new requirement drives variability within almost every transaction, causing data to appear or not appear on the documents.These changes mean significant differences for lenders, who have worked for years with a very different set of static forms. The learning curve is going to be high in terms of lenders getting familiar with all of the variations in how the disclosures look and feel, given the appearance of only transaction-specific content appearing now as a disclosure form is created to match the type and terms of the loan in question. But with a better understanding of the variability in the disclosures, lenders will be better positioned to help educate the consumer and answer their questions, which in turn will help the consumer make decisions that best suit their needs.A dynamic or transaction-specific look and feel of the disclosures was one of the main purposes behind the TRID rule. It’s important to note that these disclosures are also new to the consumer and designed to help them understand the key features, costs and risks of the mortgage loan they are applying for.The disclosures provide more information, with clear language and a more approachable design, to make it easier for consumers to locate key information, such as interest rate, monthly payments, and costs to close the loan. Changes of Significant MagnitudeThe switch from static to dynamic disclosures marks a significant change, not only for consumers but for lenders as well. Take, for example, the Loan Estimate, which replaces the Good Faith Estimate and the initial Truth-in-Lending disclosure. When distributed to the consumer, the Loan Estimate is now a three-page disclosure. The Loan Estimate is intended to help the consumer understand the key features and risks of the mortgage they are applying for. In order to help the consumer through this analysis, lenders must be able to identify and explain the disclosures and the variations that may exist when presenting more than one loan estimate, or if asked to compare the loan estimate to that of a competitor’s. Among the four major sections found on the first page of the Loan Estimate—General Information, Loan Terms, Projected Payments, and Costs at Closing— elements of all four sections can vary, depending on the type of transaction. Loan Terms: A SnapshotThe possible variations in the Loan Terms table of the Loan Estimate alone provide a good illustration of how tailored the information within each disclosure can be. The regulation requires that each of the sections in this table provide important details about increases and adjustmentsduring the life of the loan. The regulation requires the LE to contain the frequency of adjustments, payment and interest rate caps, and the due date of the last payment that may cause the principal balance to increase in the event the terms allow the loan amount to increase after closing. If the transaction contains a prepayment penalty or a balloon feature, the details must be provided in the required format in the text boxes provided. If the transaction contains a prepayment penalty feature, the maximum amount of the penalty, as well as the date when the period during which the penalty may be imposed terminates must be described. If the transaction contains a balloon payment feature, the regulation requires the disclosure to match the model (specifically, Model H-24 of Appendix H to Regulation Z). Additional information indicating the maximum amount of the balloon payment and the due date of such payment must be described in the text boxes provided by the model form.These are only a few examples of the kinds of variations that will appear on the new disclosures. Lenders must build in time to train their staff on using the new disclosures, and to practice using them under different lending scenarios to build their understanding of and conversancy around the various sections with the disclosures. Our consultants have been working with customers to help train staff and test their “disclosure aptitude” level, with varying degrees levels of success.We’ve found in our client training sessions that it takes time, patience and practice for loan officers to familiarize themselves with the new disclosures and processes that comprise the TRID regulation. The sooner that lenders can begin working with these new tools, the better armed they will be for serving their customers.For more information, visit the CFPB’s TILA-RESPA site or Wolters Kluwer Financial Services’ TILA-RESPA Resource Center.