Do You Disclose MI Termination on TRID Disclosures? (trick question)
This is an item coming up in exams, so take 5 minutes and make sure your system is doing this correctly.
Let's do a little Q & A ...
Question
We have a 10/1 ARM with monthly Mortgage Insurance. The MI payment is scheduled to drop off after 7 years. I know we disclose this on the Loan Estimate as a "10/1 Adjustable Rate" Product but how do I show that the payment will change after 7 years? Is this reflected in the Projected Payments section or not?
OK. So this question is all about items on page 1 of both the Loan Estimate and Closing Disclosure. The Product is in the top right corner. The Projected Payments table is smack dab in the middle of the page.
Short Answer
Yes, but only if there is enough room. If the Projected Payments table would already have 4 columns without a column for the automatic MI termination, then the MI termination is not disclosed in its own column in the Projected Payments table. (Jumping through hoops to avoid starting that response with the dreaded "It depends").
Full Answer With Research
Alright, here's the backup to support the short answer above. The citations are all from the TILA regulations.
1026.37(c)(1)(ii):
The Projected Payment table shall not have more than 4 columns.
1026.37(c)(1)(i):
Add a new column to the Projected Payments table for each of the following triggering events (assuming there's space available, cannot exceed 4 columns):
(1)Principal & Interest Payment May Change
Easy example is that we show a new column when the interest rate might adjust at 10 years with a 10/1 ARM.
(2)Balloon Payment
(3)Automatic Termination of MI
So the termination of MI is CLEARLY a triggering event
Bonus Regulatory Comment (notes that reduction of MI is not a triggering event, only termination):
"The [projected payment table] should reflect the consumer's mortgage insurance premiums until the date on which the creditor must automatically terminate coverage ..., even though the consumer may have a right to request that the insurance be cancelled earlier. Unlike termination of mortgage insurance, a subsequent decline in the consumer's mortgage insurance premiums is not, by itself, an event that requires the disclosure of additional [column]."
(4)Due Date Anniversary where Multiple Events occur mid-year
Uncommon situation. Read more about it in the official commentary.
1026.37(c)(1)(ii)(B): Exception for MI.
Despite general rule above, a new column for MI on the Projected Payments table is only permitted if the total number of columns otherwise disclosed does not exceed 4. (Note: Rule actually says "3", but if you read closely, this refers to 3 additional columns, so it's easier to say 4).
**Where the MI termination is not disclosed in its own column, the payment decrease is simply reflected in the next available column. For example, if you're not disclosing the MI termination in year 7, and the first column on the Projected Payments table is for Years 1-10, then the MI payment will show for that column, but drop off in the next column.
So you see, whether the MI termination appears on page 1 of your Loan Estimate or Closing Disclosure depends on the specific terms of that loan. Does it have so many potential adjustments that there's no space to disclose the MI termination? Because interest rate adjustments will take precedence over the MI termination.
Examples
Let's do some examples!
Example #1: 10/1 ARM with 4/8 caps
We have a 30-year mortgage with MI terminating automatically at 7 years. It's a 10/1 ARM with an initial interest rate of 4.00%, a 4.00% cap on every adjustment, and a maximum cap of 12.00%. Without the MI, there will be only 3 columns: Years 1-10; Year 11 (max at 8.00%); Years 12-30 (max at 12.00%). Therefore, there is room to add a 4th column to reflect the MI termination at 7 years.
So here's how it should look:
Example #2: 10/1 ARM with 2/6 caps
We have a 30-year mortgage with MI terminating automatically at 7 years. It's a 10/1 ARM with an initial interest rate of 5.00%. There's a 2.00% cap on individual adjustments and a maximum cap of 11.00%. Here, even without showing a column for MI termination there will already be 4 columns in the Projected Payments table: Years 1-10, Year 11 (max 7.00%); Year 12 (max 9.00%); and Years 13-30 (max at 11.00%). There's no extra room for the MI termination, therefore it is not disclosed.
In Other News
Pres. Trump has called the Dodd Frank Act a "disaster", but before everybody in mortgage lending gets too excited, note that almost all specific changes proposed have been directed towards items like the Volcker Rule and other things that are unrelated to our day-to-day challenges with compliance. And even if the CFPB is weakened, (a) most of the rules they wanted to pass for mortgage lending have already been written, and (b) in Massachusetts, the Division of Banks does a perfectly good job of enforcing existing regulations without any help from the CFPB (indeed, the DOB has primary authority for Truth in Lending).
On avoiding the CFPB and forgetting the DOB, I'm not saying this is a perfect analogy, but did you see the guy in China who snuck past zoo officials to avoid paying for admission, only to drop into a pen and get eaten by a tiger?
Hey if money doesn't grow on trees, why do we call them bank branches?
Buying or selling a mortgage company? Valuation is always difficult. Well, if you're looking for a measuring stick as a starting point - note that Stonegate Mortgage was sold for $211 million and originates about $9.5 billion per year with $200 million in revenue per year.
So we're lectured on cybersecurity almost ad nauseam. Same old examples about redirected wire transfers, stolen account information, copied credit card information, etc.. Yes, we know they can hack our computers.
Well this NYT article describes a different type of cyber-attack, one where devices other than computers were hacked, which makes you think twice when you consider all of the other WiFi enabled devices that we can use. In Austria, Hackers used ransomware to attack a hotel (a busy time of years, 180 guests, and rooms going for $500 plus). The hackers locked all guests out of their rooms. The hackers demanded an $1,800 ransom. What choice did the hotel have? Break down all of those doors?
So this is starting to get "real." They hacked and turned off the key card system at a hotel, affecting hundreds of people in a real-life kind of way. What else can be turned off? Baby monitors? Your car's braking system? Security cameras? The article describes hacks to hospitals, law firms, police departments (which we've seen here in New England - here and here too), corporations, a municipal utility, schools, and more.
Amusingly (and not unintelligently) the hotel has gone back to old-fashioned door locks and real keys - no more electronic keycards. Makes you think about all the WiFi connected gadgets that are out there: there are "apps" to control your home's heating system, WiFi home security systems and door locks, you can start your car with a cell phone, even refrigerators and coffee machines have WiFi access.
"I've learned I can make a mistake and the whole world doesn't end. I had to learn to allow myself to make a mistake without becoming defensive and unforgiving."
- Lisa Kudrow
(also hopefully Me on Wednesday mornings, at some point in the future)
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