TRID “Black Hole” Rule Brings Changes for Banks
On April 26, 2018, the Consumer Financial Protection Bureau (CFPB) issued the long-anticipated “Black Hole” Final Rule (“The Rule”). The Rule is effective and mandatory on June 1, 2018. The Rule was issued to address the costs lenders incur when a lender is permitted under TRID, 1026.19(e)(3)(iv), to issue a revised disclosure and reset tolerance but, due to the timing rules for the provision of TRID disclosures, neither a Loan Estimate or Closing Disclosure can be issued to effectuate the reset of tolerance. This so-called “black hole” issue has caused banks to incur costs that may rightfully be charged to customers. The Rule eliminates the “black hole” and will require action by banks.
Beginning June 1, 2018, pursuant to the Rule, banks may now reset tolerance under permissible circumstances using a Closing Disclosure or Corrected Closing Disclosure, regardless of how many days remain before consummation. For example, if a permissible circumstance under 1026.19(e)(3)(iv) for revising a fee/charge arises ten days before closing, but the bank has already provided the Loan Estimate and Closing Disclosure, the bank may provide a Corrected Closing Disclosure to reset tolerance for that fee/charge. Under the existing TRID rules, banks would not have been permitted to issue a Corrected Closing Disclosure to reset tolerance in those circumstances.
Timing requirements for the provision of Loan Estimates and Closing Disclosures remain unchanged and banks must continue to adhere to those requirements even when resetting tolerance under the new Rule. The timing requirements will dictate which disclosure – a revised Loan Estimate or a Closing Disclosure – should be issued to reset tolerance. For example, under existing, unchanged timing requirements, banks may not provide a Loan Estimate on or after the date on which the bank provides a Closing Disclosure. Therefore, if a permissible circumstance under 1026.19(e)(3)(iv) exists and a Loan Estimate has already been issued, the bank must use a Closing Disclosure to reset tolerance. In contrast, if the bank has issued only a Loan Estimate and a permissible circumstance arises under 1026.19(e)(3)(iv), the bank may provide a Revised Loan Estimate to reset tolerance so long as it is received by the customer not later than four business days prior to consummation. Furthermore, banks must provide any revised disclosure within three business days of receiving information sufficient to establish that a permissible circumstance under 1026.19(e)(3)(iv) exists.
As a result of the Rule, banks may no longer only be comparing values between a Loan Estimate and a Closing Disclosure for tolerance purposes. Once the Rule becomes effective, an initial tolerance value for a fee/charge (to be compared against the charge paid by the consumer, as expressed on the final Closing Disclosure) may come from either a Loan Estimate, Revised Loan Estimate, Closing Disclosure, or Corrected Closing Disclosure. Banks should work with their vendors to determine how they are approaching these changes to tolerance calculations. Furthermore, banks should consider any process changes that may be necessary and should prepare and train staff to address these changes.
DISCLAIMER: The information provided is for general informational purposes only. This post is not updated to account for changes in the law and should not be considered tax or legal advice. This article is not intended to create an attorney-client relationship. You should consult with legal and/or financial advisors for legal and tax advice tailored to your specific circumstances.