TRID 2.0:

What You Need to Know

Legal Disclaimer The information presented is confidential and proprietary to Calyx Technology, Inc., dba Calyx Software

(“Calyx”), and may not be disclosed without the permission of Calyx. The purpose of this presentation is

to provide information, rather than advice or opinion. It is accurate to the best of the speaker’s

knowledge as of the date of the presentation. To the extent that this presentation contains any

examples, please note that they are for illustrative purposes only and any similarity to actual individuals,

entities, places or situations is unintentional and purely coincidental. In addition, any examples are not

intended to serve as legal advice. No part of this presentation may be modified, printed, or presented

without the permission of Calyx.

© Calyx Technology, Inc. 2018. Calyx and Calyx Software are registered trademarks of Calyx Technology, Inc. All rights reserved.

This webinar and the statements made herein are for informational purposes only and do not

constitute legal advice, guidance, or interpretation from myself, IDS, Calyx, or the CFPB (or even the

BCFP).

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Housekeeping

Agenda

• History of TRID

• Loan Estimate and Closing Disclosure Updates

• Simultaneous Subordinate Financing

• Construction Lending

• Q&A as Time Permits

• Compliance

• Risk management

• Data security

• System implementation

• Civil litigation

Vince Wilson In-House Counsel, Compliance | IDS

Presenter

History of TRID 2.0

• Preliminary Rule

• Final Rule Released – July 26, 2017

• Permissive Compliance Begins – October 10, 2017

• Mandatory Compliance Begins – October 1, 2018

With an Optional Compliance Period, Inconsistencies are Permitted

In the Preamble to the Final Rule, the CFPB stated that “the minor variations in disclosure possible during the limited duration of the optional compliance period will not cause significant consumer confusion, whether such minor variations occur as between a Loan Estimate and Closing Disclosure issued by the same creditor or between Loan Estimates issued by two different creditors, although creditors may not phase in compliance in a way that violates provisions of Regulation Z (as interpreted by the commentary) unchanged by this final rule.” (p. 415-416)

What will be Changing on the Loan Estimate and Closing Disclosure?

• Borrowers that appear on the top of the form

• LE Expiration Date

• Rounding and Truncating

• Seller Paid Fees

• Escrow Calculations

• Principal Reductions

• Simultaneous Subordinate Financing

• Construction Lending

Borrower’s Appearing on Forms

• Pursuant to changes to 38(a)(4) and associated commentary, the borrowers that appear at the top of the CD should only be those individuals who will be liable under the note.

• Title only individuals with a right to rescind should not be listed as a borrower on the form, though they should continue to receive a separate CD under 1026.23.

Loan Estimate Expiration Date

Amendments to 37(a)(13)-2 and the newly added 37(a)(13)-4 specify that the initial LE should indicate that the estimated charges may expire in not less than 10 days. After a timely Intent to Proceed has been received, the date and time of the expiration date should be left blank on revised Loan Estimates.

Rounding and Truncating

• Pursuant to changes to 37(o)(4) and 38(t)(4), all percentages will be rounded and then trailing zeroes will be truncated.

• Previously, there was confusion regarding rounding and truncating vs. rounding vs. truncating for the APR and TIP.

• Now APR and TIP are both rounded to three decimal places, then truncated where applicable.

• Additionally, there was significant confusion on truncating zeroes before and after the decimal point.

Truncating

Previously, zeroes after the decimal point were not truncated. For example, 5.00% would display as 5% under TRID 1.0 and 2.0;

5.500% would display as 5.50% under TRID 1.0 but will display as 5.5% with TRID 2.0 since all trailing zeroes are truncated.

Rounding – Prepaid Interest

• LE Per Diem Interest: Rounded to the nearest cent on the Loan Estimate pursuant to Comment 1 to 37(o)(4)(i)(A). The rule states, “[The per day] [d]ollar amounts are rounded or truncated to the nearest whole cent.”

• This means that the daily rate of prepaid interest previously disclosed as “$16.25475” will now be disclosed on the LE as “$16.25.”

• But, the calculation for the total of prepaid interest is based on the unrounded daily rate.

Rounding – Prepaid Interest

Example of rounded vs. unrounded daily rate

$27.1050 per day for 23 days @ 3.875% would be disclosed on the LE as:

Prepaid Interest ($27.11 per day for 23 days @ 3.875%) = $623

Not as:

Prepaid Interest ($27.11 per day for 23 days @ 3.875%) = $624

Zeroes in Cash to Close

• Zeroes in Cash to Close – The text of the rule is inconsistent, with some lines requiring zeroes be displayed as “$0” and others as “$0.00.”

• IDS, with other industry leaders, has brought this issue before the CFPB which stated that the intent of the rule was to have zero amounts display as “$0” in all parts of the Cash to Close table.

Seller Paid Fees

• Changes to 37(h)(1)(vi)-1 and 2 make it permissible to decrease or remove Seller Paid fees on the Loan Estimate.

• Under TRID 1.0 and 2.0, you may display the full amount of the borrower responsible fee, and then show the seller credit as a lump sum in the Cash to Close table.

• Under TRID 2.0, you may decrease the fee by the amount of the credit on the LE and not display the Seller Credit.

• Note that this method may result in the need for a tolerance cure if the amount of the seller credit decreases or the amount of the fee increases.

Escrow Calculations

Escrowed Property Costs Over 1 Year – Under revised 38(l)(7)(i)(A)(2)-2, lenders have the option of calculating Escrowed and Non-Escrowed Property Costs Over 1 Year based on either:

• 12 Months from Consummation (generally 11 payments),

• 12 Months from Initial Periodic Payment (generally 12 payments).

Escrow Calculations Escrowed Property Costs Over 1 Year – Under revised 38(l)(7)(i)(A)(1)-2, items previously excluded from Escrow calculations on page 4 of the CD, like Mortgage Insurance and USDA Annual Fees assuming such fees are paid using escrow funds will now be included in either the “Escrowed Property Costs Over 1 Year.”

Principal Reductions

Comment 4 to 1026.38 states that Principal Reductions should be disclosed on the Summaries of Transactions table under 38(j)(1)(v) or on the Payoffs and Payments table under 38(t)(5)(vii)(B).

The disclosure should include:

• the amount,

• the phrase “Principal Reduction,”

• the paying party,

• the POC designation if applicable, and

• a statement that the reduction is being used to cure a Good Faith Tolerance violation if applicable.

Principal Reductions

Simultaneous Subordinate Financing

• Amendments related to Simultaneous Subordinate Financing throughout TRID 2.0.

• Highlights are the ability to use the Alternative LE/CD (37(d)(2)) and guidance on how to disclose subordinate financing on the first lien disclosures and vice versa.

Simultaneous Subordinate Financing – First Lien Disclosures

• Previously, lenders would disclose the subordinate financing as a negative payoff, in Line L.04, or even in Section H.

• Under revised 37(h)(2)(iii)-2, the amount of subordinate financing that is used to payoff the purchase price should be disclosed in Line L.04 in the Summaries of Transactions and taken into account in “Adjustments and Other Credits” in the Cash to Close table.

Simultaneous Subordinate Financing – First Lien Disclosures

$1M Purchase Price, $900K First Lien, $45K Second Lien w/ $3K in Costs

Simultaneous Subordinate Financing – Seller’s Transaction

If the lender will use the Alternative Form for the Subordinate Financing, the entirety of the Seller’s Transaction should be displayed on First Lien Closing Disclosure including any fees paid by the Seller on the subordinate transaction. This is pursuant to changes to new comment 38(k)(2)(vii)-1, 38(j)-3, amending comments 38(d)(2)-1 and 38(j)-3, and amending proposed new comments 38(t)(5)(vii)(B)-1 and -2.

Simultaneous Subordinate Financing – Second Lien Disclosures

• The Purchase Price and First Lien transaction are not included in any calculations under the Second Lien disclosures.

• The Second Lien proceeds being used to pay the purchase price are included in the “Payoffs and Payments.”

Simultaneous Subordinate Financing – Second Lien Disclosures $1M Purchase Price, $900K First Lien, $45K Second Lien w/ $3K in Costs

Construction Lending – Loan Terms

• With the creation to Comment 7.iv to Appendix D, there are significant changes in disclosures for Construction financing when interest accrues on advances when made.

• First, the Loan Terms table will now show that the payment will change every payment starting with the first payment.

• When determining the highest payment, the maximum payment on the maximum draw amount is used as opposed to half of the loan amount.

• For most single close loans, the highest payment is during the permanent period.

Construction Lending – Loan Terms

TRID 1.0 TRID 2.0

Construction Lending – AP Table Similar to the changes to the Loan Terms table, the AP Table will show that payments will change every payment.

TRID 1.0

Note that the First Change Amount is blank because the amount of the payment is unknown at consummation.

TRID 2.0

Construction Lending – Rate Unknown

• Amendments to 37(b)(2)-1 and Appendix D Comment 7.iii have provided significant guidance on how to disclose a single-close transaction where the interest rate for the permanent phase of financing is not known at closing.

• When the rate is unknown, the Loan Product Disclosure will show the loan as Adjustable Rate, even where the rate will not change during consummation. This is because the rate may adjust after consummation, before the permanent rate is set.

Construction Lending – Rate Unknown

When the rate is unknown, the Loan Terms table will show the worst case scenarios for changes, with the max interest rate possible.

Construction Lending – Rate Unknown

The AIR Table will display as if the loan were adjustable rate, with a single adjustment (assuming the rate is fixed once it is set for the permanent phase).

TRID 2.0

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