Compliance Journal July 2024
Special Focus TRID Clarifications and FDIC Expectations WBA has recently received clarification from FDIC regarding two Truth in Lending-Real Estate Settlement Procedures Act Integrated Disclosures (TRID) questions. While these are not new requirements, FDIC’s interpretations are meant to clear up ambiguity regarding expectations on how existing disclosure requirements must be met. The two questions discussed in this article are: 1. How must owner’s title be disclosed on the Loan Estimate when paid by the seller? 2. Who must be listed on the Closing Disclosure as the government entity charging transfer taxes? WBA has received the following information from FDIC’s field management team and Chicago regional office regarding these issues. FDIC supervised banks can expect examiners to follow these interpretations. Non-FDIC supervised banks will need to confirm with their prudential regulator as to whether they have similar expectations. Owner’s Title Owner’s title is an insurance product that protects the homeowner from title issues. Because owner’s title is not typically required by the creditor as part of the transaction, it is optional for the consumer to purchase. In Wisconsin, owner’s title is typically paid for by the seller, and the standard real estate purchase contract contains default language that the seller is responsible for paying for owner’s title insurance. TRID requires disclosure of all costs associated with a loan transaction under a heading labeled as “closing cost details.” The costs disclosed include “loan costs” and “other costs.” Loan costs are those services that the creditor requires for making the loan and other costs are all additional costs associated with the transaction. Because lenders typically do not require owner’s title, it would not be required to be disclosed as a loan cost, leaving the question as to whether it must be disclosed as an other cost. This has been a question subject to multiple interpretations since the inception of TRID. FDIC has clarified its expectations that owner’s title must be disclosed as an other cost, even when paid by the seller. Prior to this clarification, interpretations of this requirement have varied. Prior to sharing FDIC’s rationale, the following is presented as a matter of background. Starting with the rule, Regulation Z section 1026.37(g)(4) requires 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. One interpretation of this requirement was based upon a strict reading of the rule, that when owner’s title is an amount owed by the seller pursuant to the sale’s contract it is not a fee that would appear on the Loan Estimate. This interpretation relied upon the fact that the rule requires disclosure of fees charged to the borrower. The theory being that when the contract requires the seller to pay the fee, it is not a fee charged to the borrower and thus, would not be a credit, either paid by the borrower or paid by others, but rather, a fee charged directly to the seller. Another interpretation reached the opposite conclusion, that even when the seller paid owner’s title, because it’s an amount that the owner “contracted with another person” to pay, it must be disclosed as an other cost.