León Cosgrove

TILA-RESPA Integration and Lender Obligations

By: Carly A. Kligler

mortgage-home-keys-thinkstock-750xx2040-1148-0-162On October 3, 2015, the TILA-RESPA Integrated Disclosure Rule (TRID) went into effect. Its provisions are aimed at improving consumer understanding of the mortgage process by increasing transparency, enabling a comparison between loan opportunities and avoiding any last minute surprises at the closing table. While this increased consumer protection is well-intentioned, lenders are faced with a series of challenges as they rework their current processes to ensure compliance with these regulations.

Specifically, the TRID regulations require lenders to provide potential borrowers with a good faith estimate of their loan configuration within three business days of receiving an application. See 12 C.F.R. 1026.19 (e)(ii)(A) & (iii)(A). This places a substantial burden on the lender to expedite a preliminary review of the loan, without sacrificing the accuracy of that review. Indeed, even where a mortgage broker (oppose to a lender) provides this preliminary estimate, the lender remains obligated to ensure substantive compliance and timely delivery to the potential borrower.   See 12 C.F.R. 1026.19 (e)(ii)(A) & (iii)(A).

It is important to note that a consumer receiving this good faith estimate will not be under any obligation to pursue the loan, but will be empowered to compare a variety of lender offerings and assess which is best suited for its needs. While the benefits to the consumer are apparent, a significant burden is placed on the lender, along with corresponding exposure for its potential failure to comply without any guaranteed return on those efforts.

Under the TRID provisions, a lender is also obligated to provide potential borrowers with certain disclosures at least three days prior to a closing. This three-day waiting period is mandatory and lenders must undertake processes to ensure their adherence to same. Inevitably, there will be instances where lenders provide these closing disclosures in compliance with the three-day waiting period, but are subsequently required to reissue them based on inaccuracies they contain. In that instance, depending on the deficiency at hand, the lender may be obligated to wait an additional three days after issuing the corrected disclosure before consummating the loan. 12 C.F.R. 1026.19(f)(2)(ii).

While this might seem minimally disruptive on a case-by-case basis, in the aggregate, lenders can expect an increase in the time and costs associated with a closing as they ensure their compliance with this three-day waiting period. That being said, it is worth underscoring that not every deficiency requires a new three-day waiting period, and further an exception to the three-day waiting period exists where the consumer modifies or waives its right due to a bona fide personal financial emergency. 12 C.F.R. 1026.19(f)(1)(iv) & 12 C.F.R. 1026.19(f)(2)(i).

 

A lender’s “Good Faith” Effort to Comply

While TRID imposes several obligations on a lender to revise its mortgage origination and closing processes, one of the most difficult requirements is ensuring a lender undertakes “good faith” efforts to comply. That is, while the standard for assessing a lender’s compliance with TRID is expressly provided for in the statute, what is required to ensure “good faith” efforts have been expended is rather ambiguous. It is clear, however, that “good faith” efforts imposes different obligations at each stage of the lending process and compliance should be determined with the assistance of counsel.

With that in mind, a preliminary interpretation by the CFPB indicates that at a minimum, any good faith estimate, disclosure or other documentation provided to a potential borrower must be based on the best information reasonably available to the lender at the time it is made. See 12 C.F.R. 1026.19 (e)(1)(ii) & 12 C.F.R. 1026.17 (c)(2)(i). This “reasonably available” requirement means that a lender must exercise due diligence in obtaining information necessary to comply with the disclosure requirements of TRID. Further, the legislature has provided certain TRID approved disclosure forms, the use of which bolsters a lender’s the position that good faith efforts to comply have been made.

 

Potential Litigation Resulting from TRID

 As with any consumer protection statute, lenders can expect litigation will inevitably ensue in relation to their compliance (or non-compliance) with TRID. While valid claims should not be discredited, we can certainly expect a series of other claims that are simply attempting to test the boundaries of the statute. Thus, in the short term, it is likely that litigation will increase as a result of the implementation of TRID. In the long term, however, we may see a reduction in the number of valid claims from consumers who previously made assertions of duress and undue influence when entering into their mortgage loan, or assertions that they were unclear on what they were agreeing to at the time of closing.

Specifically, since TRID now provides consumers with the opportunity to review their loan documents well in advance of closing, it will be much harder for consumers to justifiably contend that they didn’t have a chance to inspect the closing documents or were pressured by the lender to agree to the contents despite alleged deficiencies therein. There may also be a reduction in the number of mortgage loan defaults over time, since potential borrowers will have an additional opportunity to analyze the exact terms of the loan and assess whether they are financially comfortable with those terms prior to consummating the loan.

While we won’t know for certain until the TRID regulations are put to the test in a judicial setting, if the statute is effective in accomplishing its purpose, there should be a reduction in certain types of claims against lenders in the long-term.

 

Potential Causes of Actions for TRID Enforcement

One issue that is sure to be the subject of litigation in the near future is the extent to which TRID provides a private cause of action for a lender’s failure to comply. TRID, which by definition integrates both TILA and RESPA, blurs the lines between those two regulations. While TILA traditionally offers a private right of action, RESPA generally does not. With respect to TRID, the CFPB’s implementation of that provision is under Regulation Z, the same regulation that implements TILA.

Thus, lenders can expect an argument to be made that the statutory remedies proffered under TILA–which includes enforcement through a private cause of action–are now available for violations of TRID. To the extent this position is endorsed by the courts, TRID would effectively create a private cause of action for certain disclosure violations (which encompass RESPA) where none previously exists.

Until litigation over TRID occurs and courts rule on what constitutes acceptable lender compliance and means of enforcement, lenders, along with their counsel, will be left to assess how best to proceed. Once courts have begun to rule on the legislative intent and adequacy of compliance, along with potential means of enforcement, lenders will assume the steep task and corresponding cost of ensuring their conduct is consistent with TRID in hopes that its potential long-term benefits accrue to both the consumer and lender.

 

 

CarlyKligler_BW_webCarly A. Kligler is an associate at León Cosgrove LLC who focuses on complex commercial litigation and consumer finance law. Formerly as in-house counsel for a software company, she specialized in data privacy, cyber security and regulatory compliance.