At the same time, some banks have expressed difficulty placing their TRID loans in the secondary market because of investor concern over potential liability for minor formatting errors. The Consumer Financial Protection Bureau (CFPB) responded to these concerns in a Dec. 30, 2015, letter sent to the Mortgage Bankers Association (MBA).
The CFPB's Response Letter
The CFPB response letter begins by acknowledging the serious efforts and substantial resources the mortgage industry has made to understand the rules, adapt systems and train personnel to comply with the rules, stating that with any “change of this scale despite the best efforts, there inevitably will be inadvertent errors in the early days.”
The letter reiterated that the bureau’s early enforcement efforts are “squarely focused” on whether lenders are making good faith efforts to comply with the new rules. The bureau reports it has been working with the FHFA, the GSEs and the FHA to ensure that implementation will not disrupt the secondary market, asserting that these groups will not conduct routine post-purchase reviews for technical compliance and that they do not intend to exercise contractual remedies for non-compliance provided the bank is making a good faith effort to comply.
The letter concludes by stating that the bureau, other regulators and the GSEs “believe that the risk of private liability to investors is negligible for good-faith formatting errors and the like.”
Revised Closing Disclosure Requirements
The rules allow a bank to issue an updated Closing Disclosure to correct non-numerical clerical errors or to cure violations of tolerance limits. In fact, if discovered within certain time-frames, the bank is required to provide a revised Closing Disclosure.
Banks must provide a corrected Closing Disclosure if an event in connection with the settlement occurs during the 30-calendar-day period after consummation that causes the Closing Disclosure to become inaccurate and results in a change to an amount paid by the consumer from what was previously disclosed. 12 CFR 1026.19(f)(2)(iii); Comment 19(f)(2)(iii)-1.
This corrected disclosure must be delivered or placed in the mail not later than 30 calendar days after receiving information sufficient to establish that such an event has occurred. Note that the corrected disclosure is not required within 30 days of consummation, but rather within 30 days of receiving information that establishes an inaccuracy. Furthermore, one must provide a revised Closing Disclosure to correct non-numerical clerical errors and document refunds for tolerance violations no later than 60 calendar days after consummation.
Example: Assume the loan is consummated on Oct. 1, and the security instrument is recorded on Oct. 7. On Nov. 4, the bank is made aware that the transfer taxes were higher than what was disclosed on the Closing Disclosure. The “event” occurred within 30 calendar days after consummation so the bank is obligated to provide a corrected disclosure. The bank complies with § 1026.19(f)(1)(i) and § 1026.19(f)(2)(iii) by revising the disclosures accordingly and delivering or placing them in the mail no later than 30 days after Nov. 4.
If you fail to respond within the time frame described above, then there are potential compliance violations for both the initial error and for the failure to respond; however, you can still avoid liability and provide a corrected Closing Disclosure pursuant to existing TILA/Regulation Z. According to 15 USC 1640(b), a bank can avoid compliance liability if it finds the error before being notified about the error by the borrower and it makes the appropriate adjustments and provides notice of this adjustment to the borrower within 60 days of discovering the error.
Banks will want to monitor and audit for Closing Disclosure errors and tolerance violations, and ensure that corrected disclosures are provided within the regulatory time frames. As always with compliance violations, consider consulting with your legal counsel.
Sam Holle is a senior compliance consulting specialist for risk, origination & compliance at Wolters Kluwer Financial Services. For more information, please visit www.wolterskluwerfs.com.