The Bureau of Consumer Financial Protection (CFPB) recently announced a fix for the so-called “Black Hole Issue,” a byproduct of amendments to the TILA-RESPA Integrated Disclosure Rule (known as TRID 2.0). In my opinion, this fix is a great common-sense solution that came about thanks to the many comments sent to the CFPB by mortgage professionals. Keep reading to the end of this article for 5 examples that should help you understand how this fix will work.

CFPB’s TILA-RESPA Black Hole Issue

For those who cannot recall the details, the TILA-RESPA Black Hole Issue occurs due to the timing complexities surrounding issuing a revised Loan Estimate (LE) or the Closing Disclosure (CD).

A creditor must use a revised LE to reset tolerances, and the final revised LE must be received by the consumer 4 business days before consummation. However, in certain cases where the creditor learned of changes within the 4-day window, they were not allowed to use the CD to reset the tolerances – thus creating what the industry dubbed the “black hole.

The solution to CFPB’s TILA-RESPA Black Hole Issue

The fix that was released by the Bureau of Consumer Financial Protection last week, in my opinion, is a great common-sense solution that came about thanks to the many comments sent to the CFPB. At the end of this article are several examples that should help you understand how this fix will work.

The final rule that solves the TILA-RESPA Black Hole Issue will take affect May 26, 2018, 30 days after being published in the Federal Register.

This final rule makes a substantive change to the current TILA-RESPA Rule by allowing creditors to reset tolerances with a Closing Disclosure (both initial and corrected), irrespective of the date of consummation. This new provision is restricted to circumstances where the TILA-RESPA Rule currently allows creditors to reset tolerances, such as:

• Changes in costs resulting from changed circumstances
• New information regarding eligibility of the borrower
• Borrower-requested change (for instance, rate lock extension)

The CFPB believes the final rule will benefit creditors by allowing them to reset tolerances in situations where they currently do not have that option. In some situations, such as cost increases due to a borrower-requested change, these extra costs might be avoidable.

Here are 2 ways the final rule will benefit consumers

1. Creditors are currently pricing in the risk of having to absorb unexpected cost increases. This final rule will remove this extra layer of risk adjustment, resulting in lower cost of credit for consumers
2. The creditor may be unable to reset tolerances currently due to the 4-business day limit and may choose to deny the application for this reason. In such cases, this final rule helps borrowers by giving them an option of paying extra costs instead of having their applications denied.

5 examples of how the CFPB’s TILA-RESPA Black Hole solution will work

Example 1

A creditor is scheduled to meet with a consumer and provide the disclosures required on Wednesday, June 3. The APR becomes inaccurate on Tuesday, June 2. According to the new rule, the creditor DOES comply with the requirements by providing the disclosures reflecting the revised APR on Wednesday, June 3.

Example 2

A creditor is scheduled to email the disclosures to the consumer on Wednesday, June 3. The consumer requests a change to the loan that would result in revised disclosures on Tuesday, June 2. According to the new rule, the creditor complies with the requirements by providing the disclosures reflecting the consumer-requested changes on Wednesday, June 3.

Example 3

Consummation is scheduled for Thursday, June 4. The creditor hand-delivers the disclosures on Monday, June 1. On Tuesday, June 2, the consumer requests a change to the loan that would result in revised disclosures but would not require a new waiting period. The creditor is required to provide corrected disclosures reflecting any changed terms to the consumer at or before consummation. The creditor complies with the requirements of § 1026.19(e)(4) by hand delivering the disclosures required by § 1026.19(f)(2)(i) reflecting the consumer-requested changes on Thursday, June 4.

Example 4

Consummation is originally scheduled for Wednesday, June 10. The creditor hand-delivers the disclosures on Friday, June 5. On Monday, June 8, the consumer reschedules consummation for Wednesday, June 17. Also on June 8, the consumer requests a rate lock extension that would result in revised disclosures but would not require a new waiting period. The creditor complies with the requirements of § 1026.19(e)(4) by delivering or placing in the mail the disclosures reflecting the consumer-requested changes on Thursday, June 11.

In this example, the creditor is required to provide corrected disclosures reflecting any changed terms to the consumer at or before consummation. The creditor complies with § 1026.19(f)(2)(i) by hand-delivering the disclosures on Thursday, June 11. Alternatively, the creditor complies with § 1026.19(f)(2)(i) by providing the disclosures to the consumer by mail or email on Thursday, June 11, because the consumer is considered to have received the corrected disclosures on Monday, June 15 (unless the creditor relies on evidence that the consumer received the corrected disclosures earlier).

Example 5

Consummation is originally scheduled for Wednesday, June 10. The creditor hand-delivers the disclosures on Friday, June 5. The APR becomes inaccurate on Monday, June 8, such that the creditor is required to delay consummation and provide corrected disclosures to the consumer, including any other changed terms, at least 3 business days before consummation under § 1026.19(f)(2)(ii). Consummation is rescheduled for Friday, June 12. The creditor complies with the requirements by hand-delivering the disclosures reflecting the revised APR and any other changed terms to the consumer on Tuesday, June 9.

This fix to CFPB’s TILA-RESPA Black Hole issue will provide a much-needed reprieve to the industry in allowing all of us some flexibility in the timing of our disclosures. As it did not remove the Good Faith requirement for the Loan Estimate, I believe this is a win-win for the borrower and the mortgage industry.

The opinions and insights expressed in “The Solution to CFPB’s TILA-RESPA Black Hole Issue is Simple” are solely those of its author, David Luna, and do not necessarily represent the views of either Mortgage Guaranty Insurance Corporation or any of its parent, affiliates, or subsidiaries (collectively, “MGIC”). Neither MGIC nor any of its officers, directors, employees or agents makes any representations or warranties of any kind regarding the soundness, reliability, accuracy or completeness of any opinion, insight, recommendation, data, or other information contained in “The Solution to CFPB’s TILA-RESPA Black Hole Issue is Simple”, or its suitable for any intended purpose.