Close on time by avoiding a revised Loan Estimate?
Here's a tip that we hope might save you from delaying a closing someday.
It's Monday morning. You have a closing on Thursday. The borrower is the brother of a major player in Boston real estate. You're doing everything possible to close on time (lest word spread that you're unreliable with closings). But the closing attorney e-mails last minute to say the borrower has made a request that will cause recording fees to increase by $120. This is above the 10% tolerance and will require a changed circumstance (COC).
From reading the TRID Rule, you know the following:
You cannot issue a Loan Estimate on the same day as the Closing Disclosure (have to wait until the day after)
Any Loan Estimate must be received by the borrower at least 4 business days prior to closing
Generally, a revised Loan Estimate must accompany any COC (such as this one) within 3 days
(First of all, if it was that important to you, you could just absorb whatever dollar amount exceeded the 10%. No revised disclosure is necessary if you're absorbing the fee.)
But what if you don't want to absorb costs? In this example, can you find a way to increase this fee with the valid COC and still close on Thursday?
Yes! Let's discuss.
General Rule
Generally speaking, you must use a revised Loan Estimate (not Closing Disclosure) with a COC within 3 days.
In our example, even if you issue a new Loan Estimate on the same day (Monday), we still cannot issue a Closing Disclosure until Tuesday, which delays closing until Friday.
But there's an exception ...
Exception - Closing Disclosure Changed Circumstance Simply speaking, a lender can use a Closing Disclosure directly to reflect increased fees with a Changed Circumstance when it's very close to closing. (cut out the middle man)
In our example, we'll simply document the COC and issue a Closing Disclosure with those increased recording fees on Monday. No need to issue a revised Loan Estimate, absorb any costs, or delay closing.
But that was too easy. Let's discuss how big of an exception this is. (Could we just issue a CD early on in the process and use COC to revise as necessary? The answer is no, that would defeat the purpose of the new 3-day rule).
Specifically, this Rule says as follows: (1026.19(f)))
[Explains the general rule that a lender must issue a revised Loan Estimate to increase fees with a change of circumstances.] If, however, there are less than four business days between the time the revised version of the disclosures is required to be provided ... and consummation, creditors comply with the requirements of [TRID] if the revised disclosures [i.e., increased fees] are reflected in the [Closing Disclosure instead of the Loan Estimate].
What does that mean? I interpret this as basically a 7-day window. If the changed circumstance occurs on Day 1, we'll have to disclose something (whether LE or CD) by Day 4 (3 days later). If Day 4 is within 4 days of closing, then it's safe to skip issuing a revised Loan Estimate and make the changes on a Closing Disclosure directly.
Notes:
Remember we're counting "business" days (not calendar days)
If you're not 100% sure, the safe approach is always to issue a revised Loan Estimate and wait until the next day to send the Closing Disclosure
If you've already issued a Closing Disclosure when the changed circumstance occurs, you have less of a choice. You cannot issue a Loan Estimate after a Closing Disclosure has been issued
More examples
That was a lot. It's a lot for me to explain. It's technical. So let's get comfortable with a few more examples.
Example B (for bad) - Not Permitted
Appraisal comes in low on January 4th. Closing is set for January 22nd. The low appraisal causes a $200 increase in the LLPA the borrower will pay. LLPA is a 0% tolerance item and requires a COC to increase. Do you need to issue a revised Loan Estimate or can you just do a Closing Disclosure?
Loan Estimate is needed. This does not fall within the 7-day period. A revised disclosure is required by January 7th (3 days). January 7th is NOT within 4 days of closing.
Example JB (for just barely) - Permitted
Same example except for closing is set for January 11th. Here, this does fall within the 7-day window and a revised Closing Disclosure could be used in place of the Loan Estimate.
Final Note - Disagreement
There is a reason why I picked this issue (like others). Not quite everyone agrees. (Andy maybe I shouldn't always stick my neck out when there's a debatable issue, but what the heck - why is anyone reading this if we're just going to regurgitate non-controversial news?)
So some people would disagree and actually say a Closing Disclosure can only be used in place of a Loan Estimate to reflect changed circumstances where the changed circumstance actually occurred between the 3rd and 4th days before closing. This would make this exception extremely narrow.
The ammunition for this alternative strict interpretation comes the CFPB's Compliance Guide, which states that:
If the changed circumstance or other triggering event occurs between the fourth and third business days from consummation, the creditor may reflect the revised charges on the Closing Disclosure provided to the consumer three business days before consummation.
That all said, here's why I feel confident that this is just a misunderstanding:
First, the written language of a regulation is going to control any informal guidance. So the Rule quoted above should trump the Compliance Guide language.
Secondly, check out Andy Arculin's (CFPB counsel) detailed analysis of this issue in the CFPB's public commentary from August 26, 2014 (written transcript available here). Seems clear to me that he interprets this to be a 7- day window and does not adopt the narrow approach some have.
Therefore, in circumstances where there are less than four business days in between the time the revised disclosures would be required to be provided, that's again generally going to be within three business days of receiving information sufficient to establish, then the Closing Disclosure may be used to redisclose any estimates that increase due to a triggering event and some examples are laid out in the commentary.
Tell me if you disagree. But I think you'll find that the 7-day interpretation is better supported by both regulatory language and common sense.
In Other News:
Man the Banker & Tradesman has some great contributors - here's an interesting article that calls it crazy that lenders are hesitant to share federal disclosures (i.e., Closing Disclosure) with realtors because realtors are likely to catch a lot of mistakes. First of all, lenders could easily incorporate a waiver into their disclosure package to permit them to release such information to brokers. But the cynical side of me doubts how carefully real estate brokers are reviewing the federal disclosures for accuracy, my thought being they liked to use the old HUD-1 mostly as proof to collect their commission check.
Has anybody used Wunderlist? Actually a pretty easy way to create "To Do" lists to share, whether a list of contracts to get out at work or a grocery list to handle on Saturday.
Another area Chipotle closed down with health concerns??
Upset with your LOS vendor? Well how would you feel if you sunk $1 trillion into something that had crippling technological glitches? In what's been referred to as one of the "most expensive military blunders of all time," that's the case with the Air Force's F-35 fighter jet - a software bug forcing it to reboot its radar frequently, one of numerous problems with the plane. Yikes!
Looking to have some fun and do a good deed this Saturday night? South Shore Bank is sponsoring a dinner and auction at Granite Links Golf Club in Quincy, MA to benefit the Cardinal Cushing Centers. The event is designed to help fund the Center's annual "Trip of a Lifetime" to Disney World for the school's graduating classes.
Since 1947, Cardinal Cushing Centers has had 3,500 students. They describe themselves as:
Cardinal Cushing Centers is a caring intergenerational community where people live full and meaningful lives at home, at work, at school and at play. Individuals with intellectual disabilities are an integral part of our community and are provided supports to achieve independence, and fulfilling relationships while honoring the founding values of the Sisters of St. Francis of Assisi and Richard Cardinal Cushing whose extraordinary vision encompasses all people, all faiths and all abilities.
For more information on Saturday's event, or for tickets, contact Sheila Smolak at SSmolak@cushingcenters.org or 781-829-1201.
I'll see you there!
"You have it easily in your power to increase the sum total of this world's happiness now. How?
By giving a few words of sincere appreciation to someone who is lonely or discouraged. Perhaps you will forget tomorrow the kind words you say today, but the recipient may cherish them over a lifetime."
- Dale Carnegie
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