Good morning,

We have a lender credit change between the initial closing disclosure and the final closing disclosure. The general lender credit decreased from the initial closing disclosure to the final closing disclosure by $2.80. There was no (0.00) lender credit reflected on any of the Loan Estimates provided to the borrower, only on the initial CD, then decreased on the final CD.

Is this a TRID violation and would we need to provide a cure to the borrower for the 2.80?
Our first thought was, no, because there was no lender credit disclosed on any of the Loan Estimates. However, we are being advised, since the initial CD disclosed a lender credit we have to provide the full initial amount. The 2.80 reduction was not under a valid CoC, simply an adjustment on the final CD.

Your feedback is greatly appreciated!

Not technically, but most investors would require it to be the same. If you are issuing a general lender credit, why was it not on any of the LEs?

I don't know the answer to that question, but a lender credit was reflected on the initial closing disclosure. (It appears to cover the cost of the borrowers homeowners insurance, but I honestly don't know why) We are being told this is a TRID violation. I didn't think so, since the LE reflected no lender credit. I did run a compliance check and it is failing for the reduction of the credit from the initial CD to final CD.

There is no baseline test between the initial CD and the final CD - only the initial LE and any subsequent valid disclosure that involved a changed circumstance that reset your baselines.

But as Randy said before, most investors don't like it to be different so that is probably where your issue is coming from. Investor rules can be more strict than TRID rules.

Thank you both very much for you responses!

Hello again,

Here is the response I received for the lender credit fail from initial CD to final CD from compliance. Would either of you agree this is what the rule is referencing? As far as I can tell, the rule applies to the LE's, not when the fee is introduced on a CD:

In this case, while the Loan Estimates did not have any lender credits, a lender credit was introduced on the initial closing disclosure for $3,080 making it automatically comparable. Then it was reduced to $3077.20 on the revised closing disclosure without a change circumstance causing the fail result under the Lender Credits Cannot Decrease test for $2.80.

Official Interpretation to 1026.19 (e)(3)(i)

5. Lender Credits
The disclosure of “lender credits,” as identified in § 1026.37(g)(6)(ii), is required by § 1026.19(e)(1)(i). “Lender credits,” as identified in § 1026.37(g)(6)(ii), represents the sum of non-specific lender credits and specific lender credits. Non-specific lender credits are generalized payments from the creditor to the consumer that do not pay for a particular fee on the disclosures provided pursuant to § 1026.19(e)(1). Specific lender credits are specific payments, such as a credit, rebate, or reimbursement, from a creditor to the consumer to pay for a specific fee. Non-specific lender credits and specific lender credits are negative charges to the consumer. The actual total amount of lender credits, whether specific or non-specific, provided by the creditor that is less than the estimated “lender credits” identified in § 1026.37(g)(6)(ii) and disclosed pursuant to § 1026.19(e) is an increased charge to the consumer for purposes of determining good faith under § 1026.19(e)(3)(i).

Well, they are quoting 1026.19(e) which is the LE. I don't see any support for their opinion in that section of the commentary.

I don't see any support either. Thank you.

If you dont have a valid reason for the credit reducing, of course its a cure. You cant show the borrower is getting credit for a certain amout and then just reduce it. Where is there even a debate. I think not having any credit on the LE is irrelevant. (not showing any lender credit on the LE when they borrower did in fact have credit, is a benefit to the borrower so long as you actually pay the credit later)

Hawk, don't be so sure. It's established in the regulation that the good faith estimate tolerance rules (and tolerance cures) are based on any differences between the LE costs (as adjusted with timely revised LEs following changed circumstances) and actual costs paid by or imposed on the consumer(s).

Note that there is no mention of the closing disclosure there (unless a cost is adjusted on a closing disclosure within 3 business days, when a LE can't be used for the purpose).

Is putting that lender credit on the initial CD a disclosure violation? Yes, and it could be part of a UDAAP citation and penalty if there's a pattern or practice of such errors. But it's not automatically a cause for a cure.

There are investors who might insist on a cure in similar circumstances (or even refuse to buy the loan).

In other words, the conservative approach (and the one that avoids this debate/discussion) is to just provide a cure. If, however, an auditor or examiner is attempting to cite you for not providing a cure, they aren't going to be able to provide a citation as one doesn't exist.

And as mentioned previously, your hands may be tied if it is an investor looking at the loan.

I've been looking through some older threads related to "initial" and "final" closing disclosures - wasn't there some criticism earlier on when TRID first came out about having the initial/final CDs at all? Has that gone away? Is this considered an acceptable practice now?

wasn't there some criticism earlier on when TRID first came out about having the initial/final CDs at all?

Can you clarify this statement? I am not sure what you are referring too.

I may be misremembering, but I thought I got that impression from a BCC webinar earlier on that there shouldn't be "initial" or "final" CDs (though I don't know if it was ever discussed on BOL). It has been in my head for so long, and I haven't been heavily involved in TRID since it first came out, so I was hoping that could be clarified. I would just go review the webinar but it looks like I don't still have access to it.

Well, you are require to issue a CD at least three business days prior to closing. If there are no changes, then a duplicate CD at closing is not required to be issued under the regulation. However, I think that you will find that the industry standard has basically morphed this into an initial and final CD being required, whether there have been any changes or not.

And I believe the majority, if not all, investors require this to purchase a residential mortgage loan.

I agree most institutions will provide a Closing Disclosure at the closing table, even if nothing has changed. We were addressing a trend where "initial" Closing Disclosures were being sent out just to get them out the door, without all the information and necessary due diligence. In other words, "initial" Closing Disclosures were being sent out too early with the thought of "this isn't the real one" or "we get another chance".

Diane, yes that is exactly what I'm asking about thank you - I'm trying to determine if that is what is happening here, and if other banks are experiencing the same, and how they are addressing it. Any more information (citations if you have them) on that would be greatly appreciated so I can address the issue, if there is one.

In a previous life we had the same problem and our external consultants commented on it during an audit. It changed after that.

Are you asking for info/citations on giving the CD too early or providing a revised CD? The preamble to the TRID revisions talks about giving the CD too early (which I can dig up if this is it) and the CFPB TRID FAQs (sort of) explain that a revised CD is only needed if there is a change to the CD.

Thanks Adam, I am asking for anything we can point to that says providing too early (to just get it out and check that box) isn't in the spirit of the regulation. I don't recall ever seeing this in the regulation iteself which is why I ask, so the preamble would make sense if they speak to it there.

The pre-amble to the 2018 final rule discussed this quite a bit (as lots of comments were solicited and given), but here are the main statements from the CFPB that might help:

" As noted above, the timing restriction on resetting tolerances creates a disincentive to providing consumers with Closing Disclosures very early in the lending process. Once a creditor has provided a Closing Disclosure, it can reset tolerances only if there are less than four business days between the time the revised version of the disclosures is required to be provided pursuant to § 1026.19(e)(4)(i) (i.e., within three business days of the time the creditor received information sufficient to establish the reason for revision) and consummation. The Bureau agrees with commenters who stated that the practice of providing very early Closing Disclosures with terms that are nearly certain to be revised would be contrary to the underlying purpose of the Closing Disclosure. While the Bureau acknowledges that eliminating the timing restriction on resetting tolerances with a Closing Disclosure could potentially affect the Closing Disclosure timing for some creditors, the Bureau does not believe that retaining the four-business day limit is an effective way to address potential issues associated with early Closing Disclosures."

And...

The Bureau concludes that the rule's existing provisions should prevent creditors from sending Closing Disclosures very early in the process before engaging in due diligence.

With respect to the accuracy standard that applies to the Closing Disclosure, the Bureau concludes that substantive changes to the TILA-RESPA Rule's existing provisions are not necessary to prevent creditors from sending Closing Disclosures very early in the process before engaging in due diligence. The Bureau believes the existing Closing Disclosure accuracy standard already accomplishes that objective. Existing § 1026.19(f)(1)(i) and comment 19(f)(1)(i)-1 require creditors to disclose on the Closing Disclosure the actual terms of the credit transaction. Existing comment 19(f)(1)(i)-2 also permits creditors to estimate disclosures on the Closing Disclosure using the best information reasonably available when the actual term is not reasonably available to the creditor at the time the disclosures are made. Comment 19(f)(1)(i)-2 provides that the “reasonably available” standard requires that the creditor, acting in good faith, exercise due diligence in obtaining the information. Further, comment 19(f)(1)(i)-2.i.A provides an example illustrating the “reasonably available” standard for purposes of § 1026.19(f)(1)(i). Specifically, comment 19(f)(1)(i)-2.i.A assumes that a creditor provides the Closing Disclosure for a transaction in which the title insurance company that is providing the title insurance policy is acting as the settlement agent in connection with the transaction, but the creditor does not request the actual cost of the lender's title insurance policy that the consumer is purchasing from the title insurance company and instead discloses an estimate based on information from a different transaction. Comment 19(f)(1)(i)-2.i.A provides that the creditor in the example has not exercised due diligence in obtaining the information about the cost of the lender's title insurance policy required under the “reasonably available” standard in connection with the estimate disclosed for the lender's title insurance policy. Regarding a commenter's request for clarification as to whether creditors can reset tolerances using a Closing Disclosure after issuing an initial Loan Estimate but without ever issuing any revised Loan Estimate, the rule does not prohibit creditors from doing so but creditors must otherwise comply with the rule, including its Closing Disclosure accuracy standard. The Bureau will continue to monitor the market for practices that do not comply with the rule's Closing Disclosure accuracy standard."

As Adam gave us, I think the preamble lays it out the best. As it illustrates, there are a number of different comments put together that demonstrate the "due diligence" and best information "reasonably available" standards.

To take Monster's question a tad further, are any of you dealing with delivering the CD without all the costs nailed down?
I'm being told that title companies and some vendors are not forthcoming with the actual charge so, to meet the 3 day deadline, the CD will go out with the LE estimate still showing.
I think this is what Monster was questioning too.