Written by Brandy Bruyere, Director of Regulatory Compliance
Does this look familiar to anybody? It’s at the bottom of all of the CFPB’s compliance landing pages for various rules, pointing you in the Bureau’s direction if you need more help:
Leading up to the effective date for TRID, many of our members would email the CFPB as advised here on their website. We would also submit questions on a member’s behalf or where we saw many credit unions having trouble with the same issue. While this process had a rather lengthy turnaround, sometimes we would receive helpful (although unofficial and nonbinding) guidance from the CFPB.
Then around September 2015, a few weeks before TRID went “live,” we would no longer receive responses to TRID-related questions. We would resubmit them, and still no reply. Many of our members reported the same experience – TRID questions sent to this CFPB email address just went unanswered. Several weeks ago, figuring it couldn’t hurt to try, a member of our compliance team resubmitted a question that we first sent nearly a year ago because the question came up again. Lo and behold, last week we received a response! Keep in mind that this guidance is informal. In fact, here’s the Bureau’s usual disclaimer that they place on their webcasts and similar items:
“[This] does not represent legal interpretation, guidance or advice of the Bureau. While efforts have been made to ensure accuracy, this presentation is not a substitute for the rule. Only the rule and its Official Interpretations can provide complete and definitive information regarding requirements. This document does not bind the Bureau and does not create any rights, benefits, or defenses, substantive or procedural, that are enforceable by any party in any manner.”
Now that we have that out of the way, here is the question we submitted:
Multiple members asked how to disclose a “gift of equity” (as often seen in a non-arms’ length sale with below-market sales price where someone essentially “gifts” equity to the buyer) as this disclosure is required by Fannie Mae/Freddie Mac investor guidelines to be on the Closing Disclosure. TRID is not clear on this. A few solutions posed have included (1) listing this as “Item Paid Outside of Closing” under section 1026.38(j)(4)(i); (2) listing this as a “Seller Credit” under section 1026.38(j)(2)(vi), but not as a dollar amount, and (3) adding an addendum under section 1026.38(t)(5)(ix) and listing “gift of equity.”
How can a lender do this in a way that is TRID-compliant?
Here is the CFPB’s unofficial, informal and nonbinding response:
“For the Loan Estimate, you may want to review Regulation Z § 1026.37(h)(1)(vii) and the associated commentary, specifically comment 37(h)(1)(vii)-1. As to the Closing Disclosure, you may want to review the disclosure of a gift of equity as an “Other Credit[ ]” in section L of the Summaries of Transaction table on page 3, pursuant to § 1026.38(j)(2)(vi), along with reviewing the requirements for disclosing an offsetting amount “Due From the Seller at Closing” in section N of the Summaries of Transaction table on page 3, pursuant to § 1026.38(k)(2)(viii)…
However, please note that your inquiry and the applicable sections of the rule identified in response are impacted by the proposed rule, which was issued to clarify a number of issues identified in the 2013 TILA-RESPA Integrated Disclosure rule. We encourage you to review this proposed rule and consider providing comments for the public record.”
So it seems the CFPB has an idea of how gifts of equity should be disclosed, but is also open to considering this issue as part of the pending rulemaking aimed at clarifying TRID. NAFCU is working on its comment letter for this rulemaking so if you have thoughts, please let us know!
MLA Update. The first MLA compliance deadline is less than 2 months away and NAFCU continues to receive questions on some of the rule's ambiguities like the treatment of share secured products, providing oral disclosures and similar issues. The DoD promised guidance several weeks ago and while guidance is apparently pending, it is caught up in the pre-publication bureaucratic process for an unknown amount of time. For now, we have MLA specific blogs here, and NAFCU members can find resources here or of course contact our compliance team and we'll do our best to help!