How is "Application" defined under the new TRID Rule?
One thing that will change under the CFPB's new disclosure rules is how we define a mortgage "application." And here's how:
Trying to organize and make sense of all the changes with the TILA- RESPA Integrated Disclosure (TRID) Rule? Here's one more to add to the list.
"Application" is defined differently. Does this make you sad? We recommend taking Big Papi's advice and "Don't." Alternatively, are you closing your eyes and hoping this all blows over? If so, also try to hold your breath and see how far you can sprint.
Under TRID, we have an "application" (triggering the initial disclosure) when 6 pieces of data are collected:
Name
Income
Social security number (for credit report)
Property address
Estimated value of property
Loan amount sought
The 7th "Catch-All" Factor is Gone
Under the current rule, "application" is defined as all those things PLUS a 7th "catch-all" factor: "any other information deemed necessary by the" lender.
What difference will this make?
Many of our clients already operate as if the 7th catch-all factor does not exist. They define "application" using just those 6 factors retained by the CFPB. For these lenders, the new definition of definition is not a big deal at all. Business as usual!
However, a number of other lenders do use the 7th catch-all factor to delay giving the GFE, for example, by requiring a P+S agreement or product type as "necessary" to complete the application. Under TRID, that practice must be discontinued. This will mean that more transactions will qualify as "applications" (requiring disclosure) and that transactions will become "applications" sooner (requiring disclosure sooner).
Rationale behind the Rule
Why the change? The CFPB believes that the 7th catch-all factor has been used to delay the provision of the initial disclosures to a point where the consumer has much less opportunity to negotiate or compare other options. A major point of TRID is to get disclosures to borrowers sooner to better enable shopping.
Note on Intentional Delay by Lender
We feel obliged to share that there is a theory out there that a lender can circumvent this rule by purposefully avoiding receipt of all 6 factors until other information deemed necessary has been received. For example, by not collecting the borrower's social security number (required to trigger "application" definition) until the P+S has been received. People from the CFPB have actually offered this option out publicly in response to outcry that removing the 7th catch-all factor was too burdensome.
The official preamble to the Rule expressly permits this to some extent. For example, it does say: "The final rule permits creditors to collect the information they need to give a reliable estimate before they complete collection of the six items of information that constitute an application." Later in the same document, the CFPB argues the rule will not have a significant impact on a lenders' ability to delay providing the Loan Estimate because the lender can "simply sequence its application process to delay collection of some or all of the six pieces of information that would make up the definition of application."
Our thoughts? The whole point of this rule is to get the disclosure in the borrower's hands sooner. So be careful about "taking the bait" here and planning to rely heavily on your ability to collect other pieces of information first. The safe route would just be to collect the 6 pieces as they come in, and not think we're okay sticking our heads in the sand.
In other news:
Massachusetts has modified 209 CMR 32.00 to be more like the Federal Truth in Lending (including changing the name). We don't see this as any big problem for our clients, but something to be aware of: here's a link to the updates (it'll probably come up in another newsletter, anyway).
A community banker has been nominated to the Federal Reserve.
Did you see that a fireworks factory exploded in Colombia?
Bank of America recently released its plans on how they plan on dealing with the Closing Disclosure in the impending TILA-RESPA Integrated Disclosure Rule (see below). Wells Fargo has also released its plans on how it plans on dealing with the Closing Disclosure (see below). Does anyone else find it interesting that they are taking different approaches? Which one do you think makes more sense?
Yesterday the CFPB issued a proposed rule on prepaid products.
Here are some thoughts on how to stay cool under pressure (adopted from lessons in For Your Improvement: A Guide to Development and Coaching, (c) 1996-2009, by M. Lombardo and R. Eichinger). Whether you're playing golf or dealing with clients, staying composed is important. You don't want to get rattled, say something unprofessional, or let your anger or frustration show. Instead, strive to be a calming presence in a crisis, to be someone others can trust to handle stress and not get knocked off balance when things get tough. (Of course, taking this too far to the extreme could happen if you don't show appropriate emotion and come off as cold/un-caring).
Why is it good to "be cool?" Losing your head means losing your edge. You get emotional, and your heartbeat increases, more glucose is sent through the bloodstream ... you breathe faster - while great if you were preparing to fight a saber-toothed tiger, it's not so great for preparing a great comeback or response. The same physical response isn't a big help in 2015. While we can run faster, the diverted blood, oxygen, and glucose means we think slower (fewer resources to the thinking part of our brain, I guess)--this is why we're more likely to say something dumb under pressure. Great, so if you insult me, I can lift a car, but can't come up with a witty comeback!
Once an emotional response is triggered, it often lasts 45-60 seconds. After that, you'll be back to thinking more like yourself. What can you do in the meantime? "Count to ten," you might tell your kids. Another option is to say the second thing you think of. Apparently, there is research that shows, while your first response is often tainted by emotion, your second response should be better.
Then there's an excerpt from the book:
"Don't make it personal. .... When someone attacks you, rephrase it as an attack on a problem. Reverse the argument--ask what they would do in your shoes. When the other side takes a rigid position, don't reject it. Ask why--what are the principles behind the offer, how do we know it's fair, what's the theory of the case. Play out what would happen if their position was accepted. Let the other side vent frustration, blow off steam, but don't react."
Note to self: File this away for August 1, 2015.
"Every great player has learned the two Cs: How to concentrate and how to maintain composure."
-Byron Nelson
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**These are our opinions. We're not authorized, or willing, to express those of others.**