Written by Victoria Daka, Regulatory Compliance Counsel
Now that we are a couple of weeks strong in TRID implementation, some of the complexities of the rule appear to manifest themselves in application. Well, NAFCU’s compliance team is here to help.
In the past few weeks, we have been receiving quite a few questions from members about “piggyback” loans or “simultaneous second” liens under the TRID rule.
While the CFPB has not come out and clarified how to handle fees associated with a “simultaneous second” mortgage that is open-end, it may be helpful to keep in mind that these are separate transactions. In one of its webcasts clarifying some sections of TRID, the CFPB staff discussed “simultaneous seconds,” noting that the “alternative Loan Estimate” could be used for simultaneous closed end second loans.
It seems that the Bureau does recognize that these “piggyback” transactions are separate transactions. While this guidance is rather clear in regards to the closed-end loan scenario, unfortunately we are not aware of any clear guidance from the Bureau on open-end piggyback loans. Credit unions are concerned about the “other costs” disclosure described in section 1026.37(g), which I’ll include here for reference:
“(g) Closing cost details; other costs. Under the master heading “Closing Cost Details,” in a table under the heading “Other Costs,” all costs associated with the transaction that are in addition to the costs disclosed under paragraph (f) of this section. The table shall contain the items and amounts listed under six subheadings, described in paragraphs (g)(1) through (6) of this section.
(4) Other. Under the subheading “Other,” an itemization of any other amounts in connection with the transaction that the consumer is likely to pay or has contracted with a person other than the creditor or loan originator to pay at closing and of which the creditor is aware at the time of issuing the Loan Estimate, a descriptive label of each such amount, and the subtotal of all such amounts.
(i) For any item that is a component of title insurance, the introductory description “Title —” shall appear at the beginning of the label for that item.
(ii) The parenthetical description “(optional)” shall appear at the end of the label for items disclosing any premiums paid for separate insurance, warranty, guarantee, or event-coverage products.
(iii) The number of items disclosed under this paragraph (g)(4) shall not exceed five.”
If these are viewed as separate transactions, then arguably the fees that are associated with the second transaction are not “in connection with the transaction,” but understandably, credit unions have also noted that these fees are known at the time of application. In other words, the two transactions are linked in terms of allowing the member to consummate the loan, and the TRID rule’s overarching goal is for consumers to have as much information as possible from the Loan Estimate to, theoretically, promote knowledgeable loan shopping.
Meanwhile, section 1026.40 requires that fees are disclosed in connection with a HELOC transaction. So these same fees should be disclosed in accordance with other requirements in Regulation Z, including the open-end credit disclosures and section 1026.40. This could mean that the fees could be disclosed twice if disclosed as part of both the closed-end loan and the open-end piggyback loan.
Credit unions can look to the available guidance and commentary and make a risk-based decision as to how to comply for the purposes of these loans. Credit unions should consider in part whether their chosen method would constitute a “good faith effort” towards “substantial compliance” as NCUA has indicated that this is what it will look for in the first round of exams post-TRID.