This coming October, it will have been 10 years since the Truth in Lending-Real Estate Settlement Procedures (TILA-RESPA) Integrated Disclosures rule (TRID) became effective. Ordinarily, ten years is sufficient time to get your bank trained and everything running like clockwork. That’s not the case with TRID. Most of the requirements are so technical that it is hard for community banks to get an A+ on their tests from examiners and auditors. Let’s discuss some of the most common errors found during reviews and audits.
In the rush to get the Loan Estimate (LE) issued within the 3 business days that the regulation requires, sometimes fees are unintentionally omitted. The regulation does not allow a bank to correct those errors on a reissued LE. Strong internal controls can help a bank ensure that all LE’s generated include all the tolerance-based fees that the Bank requires. These internal controls could be as simple as designing a 2nd review checklist of the LE and using that prior to delivery or setting up standard fees in the Loan Origination System (LOS), so the fees are listed automatically in every loan of a certain type. Both internal controls can stop inadvertent omissions and save the bank from costly errors.
Once an LE is issued and delivered, there can be changes that allow banks to reissue the LE, and the bank is required to document the reasons. Banks must have a valid changed circumstance to reissue an LE and reset the tolerance basis. Failure to document the changed circumstance will result in a violation. To comply with the requirements, banks must document the amount of the original estimated charge, the reason for the change, and how it affects the cost or what the new estimated charge is. It is also a best practice to document the date the bank found out about the changed circumstance, so that the reissued LE date can be verified to be within three business days of the change as required. There is not a model form for this, and banks can document it anyway that is best for them. Most LOS systems can generate a Change of Circumstance form. Use of this form will help to avoid documentation violations.
The Closing Disclosure (CD) is where most of the errors we see appear. The list could be a long one, but let’s talk about two common ones: (1) putting shoppable fees in the wrong sections of the CD and (2) electronic filing/recording fees. The most frequent error I see is putting fees for required services in the wrong section on the CD. On the CD, Section B is for services a borrower cannot shop for, like the appraisal, and the ones where the applicant shopped and chose someone on the bank’s Written List of Providers (WLP). The tolerance for these shoppable fees is set at 10% of the total fee amount listed on the LE. Section C is for services the applicant did shop for and did not choose a provider from the WLP. There is no tolerance for these fees. The next common error is electronic filing/recording fees. These fees are handled differently depending on who is charging the fee. Depending on who is assessing the fee, determines where it goes on the CD. If the government entity that records the document is charging the fee, it goes in Section E and is not part of the finance charge. If the bank is charging the fee, it goes in Section A and is included in the finance charge. If a third-party is charging the fee, for example a title company, it goes in B or C, depending on if the applicant shopped, and it is considered a finance charge.
Although this is not a long list of errors, these are the ones we see frequently, so it is important to be aware of them and mitigate the risk of errors when possible. One thing that you can do to ensure that you have all the technical requirements of the regulation correct is to review your LOS setup. Many times, errors occur because there is something incorrect in the setup, or the LOS is not being used correctly. In addition, both the LE and CD should be reviewed prior to delivery to the customer to ensure nothing has been missed. As always, for checklists, training, and cheat sheets, Compliance Alliance is here with solutions and offers a TRID Toolkit that can help.