TRID/KBYO Rule: The CFPB Tries to Calm Lender Fears
On December 29, 2015, CFPB Director Richard Cordray responded to MBA President and CEO David Stevens’ desperate plea for clarity to address what the MBA claimed is a significant rejection by large aggregators and investors of correspondent lending channel loans for minor or technical TRID errors. In its December 21, 2015 letter to Director Cordray, Mr. Stevens noted that these minor and technical errors include “issues with the alignment or shading of forms, rounding errors, time stamps with the wrong time zone, or check boxes that are improperly completed on the LE.” The MBA feared that without some clarity from the CFPB disruption and liquidity issues would overwhelm the mortgage markets.
Yesterday, the CFPB sought to calm those fears. The CFPB again reiterated its previous position that its examiners will be “squarely focused” on whether companies have made a good faith effort to compliance with the new TRID/KBYO rules. Moreover, the CFPB indicated that during this start up period its examinations will be “corrective and diagnostic, rather than punitive.” In fact, the CFPB Letter went on to state that in an effort to ensure that implementation of the new rules will not be disruptive to the secondary markets, the Federal Housing Finance Agency (FHFA), the government-sponsored entities (GSEs) and the Federal Housing Administration (FHA) will not conduct post-purchase loan reviews for technical compliance, and more importantly, will not exercise contractual remedies, including repurchase, if lenders are making good faith efforts at compliance. That should be welcome news to all mortgage loan originators.
As for cure provisions, again the CFPB seeks to steady lender nerves, by referencing the numerous provisions of the rule that permit correction of non-numerical errors and tolerance violations. The CFPB Letter further asserts that statutory and class action damages should be assessed in connection with errors contained on the final Closing Disclosure, not on the Loan Estimate. In addition, the CFPB points out that TILA generally permits creditors to cure violations, provided those corrections occur before the borrower notifies the creditor of any errors, and, of course, for unintentional errors.
Because TRID/KBYO rules combine both TILA and RESPA requirements, the CFPB notes that many provisions of RESPA and the Dodd-Frank Act do not provide for lender lability for errors associated with the CD or LE. Specifically, the provisions that give rise to statutory and class action damages do not extend to the Total Cash to Close and Total Interest Percentage provisions of the rule.
The CFPB recognizes that a certain level of minor or technical errors are expected in these next few months, and that the CFPB and other regulators will be mindful of these irregularities as the industry and regulators work through these early glitches. The CFPB believes that given the cure provisions in the new rule and TILA and the agencies willingness to cut the industry some slack — private liability to investors should be negligible.
We shall see.