Loan Estimate: Deep Dive

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Jonathan Foxx

President & Managing Director

Lenders Compliance Group

This third article of a four-part series beckons us to a deep dive into the Loan Estimate.

In the first article, I discussed the mission of TILA-RESPA Integration and the Loan Estimate (LE).[i] The second article introduced and treated the numerous features of the Closing Disclosure (CD).[ii] Each of the foregoing articles were accompanied by detailed tables to be used for certain itemized categories and action requirements.

The final and fourth article will provide an extensive analysis of the Closing Disclosure.

I would suggest that you read all the articles in this series in order to better understand the TILA-RESPA Integration Disclosure (TRID) rule promulgated by the Consumer Financial Protection Bureau (CFPB).

One of the reasons I have written this series is to cut through the information noise. My concern stems from the nearly profiteering stance of the flourishing punditry to opine on TRID. This approach to learning seems to have become the norm recently at conferences, conventions, webinars, seminars, lectures, and pricey city-to-city forums. Indeed, also, people with no real experience in directing regulatory compliance, though having some training background, seem to hang out their TRID webinar shingle. I view the latter as but shills for generating leads for their affiliated pundits.

Attendees sometimes leave these convocations and ad hoc caboodles more confused than beforehand. Occasionally, they call my firm and want to know who has the correct view, Mr. Pundit A or Ms. Pundit B. I have noticed recently that certain pundits that previously, freely offered advice on TRID are now charging fees for their webinars or offering their guidance, for a fee, via well-known webinar purveyors and online audio/visual enablers. I offer these reflections not as exculpation, rather as expiation, since I have been on panels, and given lectures and webinars, alongside many members of the conscientious punditocracy.

But I happen to think that TRID is too important, being a generational change in disclosure, to hog the helpful information about TRID by charging a fee just so somebody could attend and possibly learn something about it. With that in mind, my firm recently did two proactive things: (1) we established the TEAM TRID™ task force,[iii] a relatively inexpensive, cost-effective way to get TRID integration implementation done efficiently; and importantly (2) we established TRIDHotline.com,[iv] an entirely free online service, manned by our task force, to assist people with their questions about TRID. We want to listen to their compliance needs!

In my view, these two foregoing measures help to address the challenge we face as we head toward the compliance effective date of August 1, 2015. I want to do what I can to ensure that we all are ready! “Ready” means ready for everybody, since the stability of the residential mortgage loan originations industry and the financial protection of the consumer depend on understanding and implementing the many features of the TRID rule.

Hopefully, you will have read the previous two articles (i.e., Part I and Part II). Now we will embark on a detailed review of the new disclosures, beginning in this third article with the Loan Estimate.

Let’s get real close to the Loan Estimate. In this article I will not discuss pre-application estimates and worksheets in detail, except to mention that a creditor or other person may choose to provide a consumer with a written preliminary estimate of terms or costs specific to that consumer before providing the Loan Estimate. If it does so, the creditor or other person must clearly and conspicuously state at the top of the front of the first page of the estimate in a font size no smaller than 12-point: “Your actual rate, payment, and costs could be higher. Get an official Loan Estimate before choosing a loan.”[v] Furthermore, the estimate may not be made with headings, content, and format substantially similar to the Loan Estimate or Closing Disclosure.[vi]

So let’s focus on the Loan Estimate, since I plan to take you solely through the Loan Estimate in considerable detail. I will discuss salient highlights of the Loan Estimate, though I caution you to realize that this review is not exhaustive or comprehensive, given that the TRID rule contains very complex disclosure requirements, far more involved, byzantine, elaborate, incisive, and potentially enigmatic than the compendiary features of it discussed herein.

Please follow my analysis carefully. Allow at least two hours to consider this elucidation. Make notes, raise questions, seek answers from competent compliance professionals!

HIGHLIGHTS

Loan Estimate Form

For any federally related mortgage loan,[vii] the Loan Estimate must be made using the model form set forth in Exhibit H - Form H-24 in the CFPB’s Federal Register issuance.[viii] TRID does not require the use of the model form for non-RESPA transactions; that is, those subject to the integrated disclosures because they are subject to TILA and secured by real property but are not subject to RESPA.[ix] There are numerous text, structure, and field descriptions associated with the LE disclosure. Thus, it would be wise not to deviate from the model provided.

For those non-RESPA loans, the disclosures must be made with headings, content and format substantially similar to form H-24. Use of model form H-24, properly completed with accurate content, would constitute compliance for those loans.[x]

According to the CFPB, the Loan Estimate integrates at least seven pages of disclosures, including:

·       Three pages of the RESPA Good Faith Estimate;

·       Two pages typically used for early TILA disclosures;

·       One page typically used for the appraisal notice under the Equal Credit Opportunity Act;

·       One page typically used for the servicing disclosure.

The Loan Estimate also incorporates disclosures of:

·       The total interest percentage (TIP);[xi]

·       The aggregate amount of loan charges and closing costs the consumer must pay at consummation;[xii]

·       For refinances, the anti-deficiency protection notice;[xiii]

·       The homeowner’s insurance disclosure.[xiv]

TRID imposes strict specifications for the Loan Estimate. For instance, unless otherwise specifically provided, a disclosure that does not apply to a transaction should be left blank, not marked “not applicable” or “N/A,” and, as a general rule, may not be deleted.[xv]