The TRID Loophole the CPFB Says Is Legit
Anyone who's closely read the nearly 1,900-page final rule for the TILA-RESPA Integrated Disclosures likely noticed a nifty loophole when it comes to how lenders can issue mortgage pre-approvals.
For everyone else, the Consumer Financial Protection Bureau recently clarified how a loan pre-approval doesn't automatically trigger TRID's three-day window for delivering initial disclosures.
The workaround was mentioned during a webinar hosted by the CFPB and Federal Reserve Board that also addressed new rules that prohibit lenders from requiring a borrower to provide verifying documentation prior to providing the Loan Estimate.
The CFPB first pointed out that TRID only prevented lenders from "requiring" such information, but that if voluntarily provided by the borrower it was permissible. Of course, the agency immediately followed up by explaining that a lender that explicitly or implicitly requires such documentation would be violating the law.
This obviously creates risks for lenders who expect to rely upon the borrowers' "voluntariness," since a borrowers' subjective belief they implicitly had to provide documentation could create risks for a lender.
However, it is only after all six pieces of information are collected that the requirement of a Loan Estimate is triggered. The CFPB also indicated that as long as a lender did not collect the six pieces of information necessary to trigger the Loan Estimate, a lender could obtain verifying documentation.
"The bureau does not believe that the definition of application will restrict creditors' ability to provide prequalification cost estimates or grant pre-approvals, because creditors could provide prequalification estimates and grant pre-approvals without obtaining all of the six elements of information that make up the definition of application," Pedro De Oliveira, counsel at the Consumer Financial Protection Bureau, said during the webinar.
Hence, as long as the lender does not, for instance, obtain the subject property address, the lender has no obligation to provide the disclosures and/or Loan Estimate.
Accordingly, those lenders that wish to provide pre-approvals may be well advised to consider making pre-approvals general, as opposed to specific to a designated property.
Ari Karen is an attorney at Offit Kurman.