Financial Institutions: Avoid Common Loan Estimate Completion Errors
The TILA RESPA Integrated Disclosures (TRID) have been required for residential mortgage transactions as of October 3, 2015. CLA has been tracking TRID completion over the course of the year, and we have outlined a selection of common Loan Estimate completion errors to help residential mortgage lenders.
As we pass the anniversary of the TRID requirements, we want to remind residential mortgage lenders that the Consumer Financial Protection Bureau’s (CFPB) initial reviews of TRID compliance will be mainly to ensure lenders are monitoring their TRID compliance and correcting errors. While the CFPB examiners won’t be focusing on technical errors, per its October 2, 2015, press release, it is important to follow the Bureau’s instruction to make good faith efforts to comply with these new standards.
Loan Estimate Page 1: General Information and Projected Payments
The General Information section located at the top of page 1 of the Loan Estimate includes the identifying transaction information. Omission of the applicant’s mailing address, omission or incorrect completion of the loan purpose, and incorrect completion of the rate lock information section are the most common oversights in this section.
Of these issues, completion of the loan purpose presents the largest fundamental challenge, as the Loan Estimate loan purpose options differ from the Home Mortgage Disclosure Act (HMDA) loan purpose codes. This section must be completed using one of four descriptions, though it is commonly left blank in error, which may stem from a software issue or confusion over the proper category to select.
The CFPB’s Guide to the Loan Estimate and Closing Disclosure forms outlines the circumstances under which each description should be chosen:
- Purchase is disclosed if the loan will be used to finance the Property’s acquisition. (§ 1026.37(a)(9)(i))
- Refinance is disclosed if the loan will be used for the refinance of an existing obligation that is secured by the Property (§ 1026.37(a)(9)(ii)), even if the creditor is not the holder or servicer of the original obligation.
- Construction is disclosed if the loan will be used to finance the initial construction of a dwelling on the property disclosed on the Loan Estimate. (§ 1026.37(a)(9)(iii))
- Home Equity Loan is disclosed if the loan will be used for any other purpose. (§ 1026.37(a)(9)(iv))
When completing Loan Estimate Projected Payments on page 1, errors related to the Estimated Taxes, Insurance & Assessments section are common. Homeowner’s association (HOA) dues, if any, are often omitted or incorrectly described in this section. The HOA dues estimate should be identified on the initial application and be included as “Other” in this section of the Loan Estimate.
When the “Other” box is selected, a brief description must be typed to the right of the word “Other.” A common error is selecting the “Other” box, but not including a description. If more than one item is being included under “Other,” identify one item in the description, followed by the phrase “and additional charges.”
The “In escrow?” section must always be completed as YES, NO, or SOME for each checked item depending on the escrow disposition of the particular item.
Loan Estimate Page 2: Loan Costs and Other Costs
Section A. Origination Charges should only include those items payable to each creditor and loan originator for originating and extending the credit. Previously, the GFE Block 1 and HUD Line 801 origination charge included certain third party fees. Misplacement of these third party charges in Section A is a common error; fees paid to third parties are required to be disclosed in Section B. Services You Cannot Shop For. Examples of these types of third party fees include document preparation fees paid to a third party, Mortgage Electronic Registration Systems (MERS) registration fees, or IRS tax transcript fees.
All Loan Estimate charges must separately identify each service using terminology that describes each item. A common error is bundling charges in Section B or C labeled as “miscellaneous title services,” which should be more fully itemized. Another common area of error in these sections is the omission of the “Title” descriptor in front of the appropriate services. The word “Title” must precede all items that are components of title insurance or for the purpose of conducting the closing, as shown below.
Only items that the creditor requires, and for which the creditor allows the consumer to select the provider, should be included under Section C. Services You Can Shop For. Non-creditor required items, such as a consumer’s personal attorney representation fee, should not appear in Section C.
Items that the consumer is likely to pay in connection with the transaction, but are not required by the creditor, should be included in Section H. Other. For example, owner’s title insurance was required to be disclosed on the GFE for all purchase transactions now covered by TRID, and is still an item that is known by the creditor as an optional service that the consumer may select in connection with the purchase transaction.
Loan Estimate Page 3: Contact Information and Other Considerations
A common Loan Estimate error is not identifying the proper information for the loan officer. Contact information on the Loan Estimate must include the name of the individual loan officer, his or her NMLS/License ID, and email or phone number, as well as the creditor contact information.
Assumption and servicing disposition information is also often omitted in error on this page. These boxes may not be left blank, and must reflect whether the loan may be assumed, and whether or not the creditor intends to service the loan.
Service provider list
The service provider list, provided to the consumer at the same time as the Loan Estimate, must include providers for all services listed in Section C. Commonly, the description of the service type is not included, even though a service provider company name and contact information is listed.
How we can help
Correct completion of the Loan Estimate is a critical step to keeping in compliance with the TRID regulation requirements. CLA’s mortgage advisory services team offers mortgage quality control, mortgage disclosure regulatory compliance review services, compliance oversight, and employee education to help lenders achieve industry quality standards.