One of the key provisions of TRID rules relates to the “good faith” requirement, which essentially provides certain tolerance thresholds that must be honored for applicants who are quoted certain fees on the Loan Estimate (LE). Tolerance requirements actually pre-date the TRID rules but were also a big part of the consumer protection requirements of TRID. TRID 2.0 has made two minor revisions to the original rules regarding using a revised estimate in calculating good faith requirements.
Resetting TRID Tolerances Under the Original TRID Rules
The original TRID rules provided for certain instances where a credit can use a revised estimate of charges - as opposed to the original estimate of charges - to calculate the good faith requirements of Regulation Z.
Under the revised Estimates section of Regulation Z [1024.19(E)(3)(iv)], a revised estimate can be used for the following reasons:
A changed circumstance affecting settlement charges, including:
An extraordinary event beyond the control of any interested party or other unexpected event specific to the consumer or transaction. [1024.19(E)(3)(iv)(A)(1)]
Information specific to the consumer or transaction that the creditor relied upon when providing the disclosures required under paragraph (e)(1)(i) of this section and that was inaccurate or changed after the disclosures were provided. [1024.19(E)(3)(iv)(A)(2)]
New information specific to the consumer or transaction that the creditor did not rely on when providing the original disclosures required under paragraph (e)(1)(i) of this section. [1024.19(E)(3)(iv)(A)(3)]
A changed circumstance affecting eligibility.
Revisions requested by the consumer.
Interest rate dependent charges.
The expiration of date listed on the LE for when the quoted fees will expire.
Delayed settlement date on a construction loan.
While we are on this topic, I think that it is important to discuss one common misconception regarding these conditions for using a revised estimate: they are not all changed circumstances. The way the rule is written is there are six reasons why a revised estimate can be used for determining “good faith” of the fees quoted, of which two reasons (one having three subparts) are considered changed circumstances. The other four (revisions, interest rate dependent charges, expiration, and delayed settlement on a construction loan) are not technically considered "changed circumstances" as they are technically “reasons” why a revised estimate of charges can be used in place of original estimates. All of that said, I have no problem calling all six reasons "changed circumstances" for communication purposes, as long as we are all on the same page that we are referring to "reasons" why a revised estimate of charges can be used in place of original estimates.
Resetting Tolerances Under TRID 2.0
While the majority of the rules for revised estimates have not changed, TRID 2.0 does make two minor adjustments to the rules. These adjustments affect only 2 of the 6 reasons permitted for using a revised estimate: 1) expiration and 2) delayed settlement date on a construction loan.
Changes to the Expiration Reason for Revised Estimates
The first reason that was amended by TRID 2.0 relates to expiration of date listed on the LE for when the quoted fees will expire, otherwise known as "expiration" as found in 1024.19(E)(3)(iv)(E). The biggest change to the expiration reason relates to the wording in the actual rule. To explain, language in the rule was added in TRID 2.0 to explain that the expiration of the fees would not automatically expire after 10 business days if a creditor had disclosed a period longer than 10 business days. For example, if a creditor had disclosed that fees would be good for 45 days, then a revised estimate could only be used for good faith calculations if the applicant did not provide their intent to proceed after the disclosed period (in this example, 45 days) had expired.
To see this in the rule, let's take a look at the actual language used. Under the prior rules, the rule read like this:
“(E) Expiration. The consumer indicates an intent to proceed with the transaction more than ten business days after the disclosures required under paragraph (e)(1)(i) of this section are provided pursuant to paragraph (e)(1)(iii) of this section.”
Under TRID 2.0, the rules read like this:
“(E) Expiration. The consumer indicates an intent to proceed with the transaction more than 10 business days, or more than any additional number of days specified by the creditor before the offer expires, after the disclosures required under paragraph (e)(1)(i) of this section are provided pursuant to paragraph (e)(1)(iii) of this section.”
As we can see in comparing the language from the old version of the rule to the TRID 2.0 version that the main change comes from adding the following statement: "or more than any additional number of days specified by the creditor before the offer expires." The preamble to the 2017 final TRID amendments provides further clarification:
“To reduce uncertainty, the Bureau proposed to revise § 1026.19(e)(3)(iv)(E) and to add new comment 19(e)(3)(iv)(E)-2 to clarify that, if a creditor voluntarily extends the period disclosed under § 1026.37(a)(13)(ii) to a period greater than 10 business days, that longer time period becomes the relevant time period for purposes of using revised estimates under § 1026.19(e)(3)(iv)(E). Proposed revisions to § 1026.19(e)(3)(iv)(E) permitted a creditor to use revised estimates under § 1026.19(e)(3)(iv) when the consumer indicates an intent to proceed with the transaction more than 10 business days, or more than any additional number of days specified by the creditor before the offer expires, after the disclosures required under § 1026.19(e)(1)(i) are provided. Proposed new comment 19(e)(3)(iv)(E)-2 stated that, if the creditor establishes a period greater than 10 business days after the disclosures were provided (or subsequently extends it to such a longer period), the longer time period becomes the relevant time period for purposes of § 1026.19(e)(3)(iv)(E). Proposed comment 19(e)(3)(iv)(E)-2 further stated that a creditor establishes such a period greater than 10 business days by communicating the greater time period to the consumer, including through oral communication. While not discussed in the section-by-section analysis of § 1026.19(e)(3)(iv)(E) in the proposal, the Bureau also proposed minor stylistic changes to existing comment 19(e)(3)(iv)(E)-1.”
Delayed Settlement Date on a Construction Loan
The second reason that was amended by TRID 2.0 relates to a delayed closing date on a construction loan. Unlike the change to the reason for expiration, this change is relatively minor in nature. In fact, the CFPB proposed this change to correct a "typographical error." Therefore, the language from the original rule and TRID 2.0 are substantially similar and should not effect most financial institutions.
The preamble to the final rule explains this TRID 2.0 change in detail:
“The Bureau proposed to amend § 1026.19(e)(3)(iv)(F) to correct a typographical error, replacing a reference to § 1026.19(f) with a reference to § 1026.19(e)(3)(iv). Section 1026.19(e)(3)(iv)(F) addresses when revised Loan Estimates can be provided for transactions involving new construction. Currently, it provides that, if the disclaimer under § 1026.19(e)(3)(iv)(F) was not provided, the creditor may not issue a revised Loan Estimate except as otherwise allowed under § 1026.19(f). However, revised Loan Estimates are issued pursuant to § 1026.19(e)(3)(iv), not § 1026.19(f), and the proposed modification would have corrected this reference in § 1026.19(e)(3)(iv)(F).
In general, commenters supported the proposed revision. A compliance professional asserted that there is confusion in the industry regarding when § 1026.19(e)(3)(iv)(F) is applicable. Specifically, the commenter requested that the Bureau clarify whether § 1026.19(e)(3)(iv)(F) applies during the permanent phase or construction phase of a construction-permanent loan. The Bureau notes that § 1026.19(e)(3)(iv)(F) is applicable to any new construction transaction where the creditor reasonably expects that settlement will occur more than 60 days after the Loan Estimate is required to be provided under § 1026.19(e)(1)(iii). If a construction-permanent loan is disclosed as separate transactions and involves new construction, § 1026.19(e)(3)(iv)(F) would apply to the construction phase Loan Estimate and permanent phase Loan Estimate if the creditor reasonably expects that settlement will occur more than 60 days after that respective Loan Estimate is required to be provided under § 1026.19(e)(1)(iii). A commenter representing a title company asked the Bureau to apply a retroactive effective date or otherwise implement technical non-substantive changes such as this one as soon as possible. See comment 1(d)(5)-2 and the Bureau's discussion regarding the effective date in part VI, below. For the reasons discussed above the Bureau is finalizing as proposed the modification to § 1026.19(e)(3)(iv)(F).”
