Accurate disclosure under TRID by "defaulting" certain information - CFPB's blessing?
Back to TRID topics as we quickly approach the deadline. Are you ready? Are you curious? Well here's some information that will hopefully make this just a bit clearer for some of you.
So I get this note the other day ...
As we are getting ready for TRID, I thought I might suggest a TRID related topic that would affect our bank and many other Spillane clients. Most of the lenders today, utilize an online application process. The two big vendors are MortgagebotPOS and Encompass. I was on a webinar with MortgagebotPOS and they are providing "default" answers for various questions (23 in all) including:
Type of Transaction (e.g., purchase, refinance, home equity) - the online app will default to Purchase
Property type - default is single family
Primary residence, second home or investment property - default is primary residence
Who will be applying for the loan? (e.g., individual or joint) - default is individual
Although the above questions and the other 19 are not included in the 6 items needed for a CFPB defined application, they are still required to provide adequate and appropriate disclosures. The online app system will allow us to choose other defaults or not require the question to be answered. The defaults can be changed by borrower selection, but sometimes borrowers are not as thorough as they could be. This would be especially true if they see a question already completed. They may not read it to answer based on their unique circumstances.
My concerns are:
How can a lender adequately and correctly disclose on the 6 pieces of required information when they are insufficient to provide proper disclosures?
What would be the CFPB's position if a lender defaulted the online app system to one set of parameters - purchase, primary residence, single family, yet the actual application should have been for a refinance of a 4 unit investment property.
These issues come down to a simple question - can a lender rely on "default" information to disclose the Loan Estimate where the borrower fails to provide that information (but nonetheless provides the magic 6 pieces of an "application")?
The answer is a resounding YES.
Example --> Borrower submits 6 pieces of information to make up application but does not say which loan product she is interested in. Are we okay "defaulting" to a 30-year fixed product for her? Yes. If she later (after disclosure) switches to a 30-year adjustable rate, then we'll have to issue a Change of Circumstance and a revised disclosure within 3 days. If we guess wrong, we re-disclose. That's it.
Old Rule: More Flexibility
Currently (before TRID takes effect), we can wait to disclose the GFE until we receive all the information we want.
For example, if the Borrower in our example doesn't give us the loan product, we can wait until she identifies one to call this an "application" and are only then required disclose the GFE.
New Rule: Disclose Sooner, with Less Information
That's not how it will work under TRID.
With TRID, we HAVE to disclose the Loan Estimate once we have those 6 pieces of information - Name, Income, Property Address, Loan Amount, and Estimated Home Value. No more waiting for ALL the information that we want.
In our example, we will have to give a Loan Estimate even though the borrower has not told us whether she's interested in a 30-year fixed, a 15-year interest only, and ARM, or whatever other products you offer. So that means you're disclosing earlier, with less information than you might have otherwise waited for.
Plenty Already Doing This!
But the good news is that this is not an impossible task. Plenty of lenders already follow this same rule by self-imposing the 6-piece test upon themselves. How do they do that? Well, they use default answers like described in the question above + rely on issuing a Change of Circumstances and revised disclosure when the defaults prove incorrect.
Here's the CFPB's response to this issue from its August 26, 2014 webinar on TRID. The question was on point: "What if a consumer submits the six elements listed in the rule, but does not specify the type of product or term?" The CFPB responded:
[The Loan Estimate Rule] is silent regarding any assumptions the creditors may make regarding elements or features of the loan such as product or term. Therefore, in the [CFPB's] view, the creditor would have discretion regarding what product, term or other features it uses to produce the Loan Estimate so long as the disclosures are made in good faith .... In our view, the creditor would not be required to produce multiple Loan Estimates that cover different product types. ... Likewise our Rule does not require the creditor to default to any specific type or term if those variables are unknown. Again, the question has been raised whether there is any sort of expectation or requirement that creditors offer a specific default product type such as a 30-year fixed. Again, the answer is no. The Rule provides discretion so long as [it is in good faith].
So there you have it. It's okay to rely on your LOS default answers. When those default answers are proven untrue, just revise the Loan Estimate with a Change of Circumstance. No problem.
In other news:
Looking to help real estate agents learn about TRID? The CFPB has an entire webpage full of helpful tools and links dedicated to the real estate agent, called the "real estate professional's guide" to TRID, available right here.
Interesting article on regulatory compliance when outsourcing cybersecurity.
In related news, a pretty informative blog with the author's take on FDIC guidance recommending banks have a disaster plan for cybersecurity
What gets you further, intelligence or your social network (i.e., your I.Q. or your N.Q.)? "N.Q." refers to your Networking Quotient, essentially how strong your social networks are. Why is this important? I think there's a lot of people who will say that N.Q. is just as important, or much more, than your I.Q. in getting ahead in life. We know how to measure I.Q., but what about your N.Q.? Here's a simple framework to test how well you network from an article in Fast Company:
So how can you quickly assess your NQ? Honestly answer the following questions on a scale of 0-4:
How many total people are in your Life, Social and Work networks? 0=none, 1=less than 50, 2=51-100, 3=101-200, 4=more than 200
What's the overall quality of your network contacts? 0=Terrible, 1=Poor, 2=Good, 3=Very Good, 4=Excellent
To what extent do you actively work on building your network relationships? 0=no extent, 1=little extent, 2=some extent, 3=great extent, 4=very great extent
What is the strength of your relationships with your network members? 0=very weak, 1=weak, 2=in between weak and strong, 3=strong, 4=very strong
How actively do you recruit new members to your network? 0=do nothing, 1=hardly at all, 2=sometimes, 3=often, 4=all the time
To what extent is the relationship with your network members reciprocal (that is, you've helped them as much as they've helped you)? 0=not at all, 1=hardly at all, 2=sometimes, 3=often, 4=all the time
To what extent do you leverage the Internet to build and maintainyour networks? 0=not at all, 1=hardly at all, 2=sometimes, 3=often, 4=all the time
Multiply your total score by 10. You'll end up with a score between 0 and 280. If your score is from 0-70 your NQ is terrible, from 71-140 your NQ needs improvement, from 141-210 your NQ is good, and from 211 to 280 your NQ is excellent.
So how did you do? Are you a networking neophyte or a world-class contender? Does this self-assessment point to some areas you might want to work on to improve your NQ? No matter how you scored, you can always get better.
Tim Sanders, Chief Solutions Officer at Yahoo once said, "All of your knowledge won't amount to much if you don't have a network of people to share it with and enough compassion for the people in that network to understand that your success is a direct result of their success."
"Crisis is an opportunity riding a dangerous wind."
- Chinese Proverb
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