This is the first entry of a three-part refresher series covering various aspects of the TILA-RESPA Integrated Disclosure Rule. 

The TILA-RESPA Integrated Disclosure (TRID) Rule, implemented by the Consumer Financial Protection Bureau (CFPB) in 2015, revolutionized the mortgage industry by consolidating several forms and disclosures into two main documents: the Loan Estimate (LE) and the Closing Disclosure (CD). Among its many provisions, the TRID Rule outlines fee tolerance requirements and defines "changes of circumstance" that affect loan terms. Understanding these aspects is crucial for both lenders and borrowers to navigate mortgage transactions smoothly.

Tolerance Requirements

The TRID Rule sets tolerance levels for certain loan charges disclosed on the Loan Estimate. There are three categories of charges with different tolerance standards:

1. Zero Tolerance - Fees that cannot increase at all between the Loan Estimate and the Closing Disclosure. These typically include transfer taxes, lender fees, fees paid to an affiliate of the lender, and fees paid to a third-party for a required service where the lender did not allow the borrower to choose a provider.
2. 10% Cumulative Tolerance - Fees that can increase by up to 10% collectively. This category covers costs like recording fees, and third-party services required by the lender if the borrower chooses a provider on the lender's list.
3. No Tolerance or Unlimited Tolerance - Certain fees have no tolerance limit and can increase without restriction. These include prepaid interest, property insurance premiums, amounts placed into an escrow account, and fees paid to third-party service providers not selected by the lender.

Valid "Change of Circumstance"

A "change of circumstance" refers to any event that affects the borrower's eligibility for the loan or alters the terms or costs associated with the mortgage transaction. Valid changes of circumstance allow lenders to revise the Loan Estimate without violating the tolerance requirements under the TRID Rule. Here are some common examples:

• Changed circumstances affecting settlement charges: This includes events like a change in the borrower's credit score, property appraisal issues, or a change in the loan amount or loan program.
• Borrower-requested changes: If the borrower requests a change to the loan terms or selects a different settlement service provider than originally disclosed, it may necessitate a revised Loan Estimate.
• Extraordinary events: Unforeseen circumstances such as natural disasters, changes in tax laws, or regulatory changes that affect the cost of the loan or settlement charges can trigger a valid change of circumstance.
• Information specific to the borrower or transaction: Newly discovered information about the borrower's financial situation or the property being financed may necessitate revisions to the Loan Estimate.

For borrowers, understanding tolerances is essential for managing expectations and budgeting effectively. By recognizing which fees are subject to tolerance limitations and which are not, borrowers can anticipate potential changes in closing costs and plan accordingly. It's important for borrowers to review the Loan Estimate and Closing Disclosure forms carefully and raise any questions or concerns with their lender.

Lenders must adhere to the tolerance limitations prescribed by the TRID Rule to ensure compliance and avoid penalties. This requires accurate estimation of closing costs and diligent oversight throughout the mortgage origination process. Lenders should also be prepared to provide explanations and updates to borrowers regarding any changes to estimated costs and ensure transparency throughout the transaction. Failure to do so can lead to compliance issues and potential legal liabilities.

What steps can lenders take to keep in compliance with the TRID Rule?

Fortunately, break-through technologies and independent service providers in the mortgage compliance space are making compliance easier, faster, and more cost-effective.  However, these solutions do not entirely obviate the lender's responsibility to do its part to ensure adequate compliance. The key to a successful mortgage compliance strategy is to maintain a healthy feedback loop and update compliance strategies as needed.  Like many other regulations, the TRID Rule is not a static piece of legislation–it can be amended and new guidance can emerge that can alter your mortgage compliance processes.

A few things lenders can do to keep ahead and ready include:

• Updating mortgage compliance policies and procedures. Company policies and procedures, including escalation steps, work best when they are kept current and consider any changes to personnel size, loan program offerings, and technology partners. Reviews should be conducted once a year at a minimum but preferably also when a major event impacting operations has occurred.
• Refreshing training for employees. Recurrent training ensures new team members, or existing team members who have switched/expanded job responsibilities, are up to speed. Several industry associations, including the Mortgage Bankers Association, offer classes and webinars on topics such as the TRID Rule to help maintain compliance and assist with continuing education.
• Leveraging technology. Investigate if there are additional tools available to you via your loan origination platform, document provider, or automated compliance partner. Typically rules, tasks, and checks can be configured at different stages of the loan cycle to alert users to potential violations prior to sending disclosures or other loan documents.

Conclusion

Tolerances under the TRID Rule serve as a safeguard to protect borrowers from unexpected increases in closing costs while providing lenders with reasonable flexibility to account for certain variations. By understanding the types of tolerances and their implications, both borrowers and lenders can navigate the mortgage lending process with greater confidence and transparency. Effective communication between all parties involved is essential for a smooth and successful transaction, ensuring that borrowers are well-informed and empowered to make informed decisions about their mortgage loans.

Non-compliance with the tolerance requirements of the TRID Rule can have serious repercussions for lenders. The Consumer Financial Protection Bureau (CFPB) closely monitors adherence to these regulations and imposes penalties on lenders found to be in violation. These penalties can range from monetary fines to reputational damage and even legal action. By prioritizing compliance with tolerance requirements, lenders mitigate the risk of facing regulatory scrutiny and the associated consequences.

Compliance with the tolerance requirements of the TRID Rule is not just a regulatory obligation–it's also a strategic imperative for lenders looking to differentiate themselves in a crowded marketplace. By prioritizing accuracy and transparency in their disclosures, lenders instill confidence in borrowers, reassuring them that their financial interests are being safeguarded. This confidence is invaluable in building a loyal customer base and establishing a positive brand image that resonates with borrowers seeking a trustworthy partner for their mortgage needs.

Did You Know?

RegCheck, Asurity’s automated mortgage compliance solution, allows lenders to detect TRID tolerance issues in real time, saving lenders valuable time and money. Testing requirements in RegCheck are highly customizable, allowing lenders to quickly identify those issues that matter the most according to their business practices. If you have any questions regarding the TRID functionality in RegCheck, please contact Franci Webster at fwebster@asurity.com.

Jonas Hoerler is Chief Regulatory Counsel for RegCheck at Asurity. Jonas has worked in mortgage regulatory compliance for nearly 20 years, acting as staff attorney and later as senior regulatory counsel prior to joining the RegCheck team. In his current role, Jonas manages the legal and compliance requirements of RegCheck and oversees all aspects regarding legislative review and product implementation.