TRID 2.0 provides the following guidance for cases where the first column of the “Projected Payments Table” (“PPT”) reflects the amounts payable during both the construction- and permanent-phases of a construction-to-permanent loan:
“If the creditor elects to disclose the construction and permanent phases as a single transaction, the repayment schedule must be disclosed pursuant to appendix D, part II.C.2. Under appendix D, part II.C.2, the projected payments table reflects the interest-only payments during the construction phase in a first column. The first column also reflects the amortizing payments and mortgage insurance and escrow payments, if any, for the permanent phase if the term of the construction phase is not a full year. The following column(s) reflect the payments for the permanent phase. If interest is payable only on the amount actually advanced for the time it is outstanding, the creditor determines the amount of the interest-only payment to be made during the construction phase using the assumption in appendix D, part II.A.1.” (12 CFR Pt. 1026, Supp. I, Paragraph App. D-7.v.B; emphasis added)
Thus, if the construction-phase is less than 12-months, the amounts paid for mortgage insurance and paid into an escrow account during the portion of the permanent-phase of the initial year are to be disclosed. The “Principal & Interest” row for this first column will disclose a range, showing the minimum and maximum principal and interest payments which could be paid during the initial year. In most (but not all) cases, the minimum will be the interest-only payments during the construction-phase, which will likely be based on the “Appendix D” or “half-estimates.”
As a result, the “Total Monthly Payment” will consist of minimum and maximum amounts which will be calculated by taking the minimum and maximum values from “Principal & Interest” and adding the “Mortgage Insurance” and “Escrow” amounts to them. This could lead to a disclosure to the borrower that their minimum payment is a combination of interest-only, construction-phase payments coupled with permanent phase mortgage insurance and escrow payments – even though no such payment would ever exist.
No further guidance to the one above is provided in Appendix D as to how the “Total Monthly Payment” amount should be calculated in the first column for these types of situations. Absent such guidance, a creditor must rely on the base regulatory requirements for calculating this amount, which is as follows:
“The total periodic payment, calculated as the sum of the amounts disclosed pursuant to paragraphs (c)(2)(i) through (iii) of this section [‘Principal & Interest’, ‘Mortgage Insurance’, and ‘Estimated Escrow’], labeled ‘Total Monthly Payment.’” (12 CFR § 1026.37[c][iv])
Thus, “Mortgage Insurance” and “Escrow” should be added to the minimum and maximum “Principal & Interest” amounts, even though this will lead to an inaccurate disclosure of the total to the borrower.
Notably, a commentator to the TRID 2.0 rule did raise this issue to the Bureau of Consumer Financial Protection (“Bureau”):
“A law firm commenter recommended that the Bureau incorporate the guidance from Section 14.7 of the Bureau’s TILA-RESPA Integrated Disclosure Rule Small Entity Compliance Guide regarding the mortgage insurance and estimated escrow disclosures in the projected payments table for transactions where the terms of the legal obligation for the permanent phase, but not the construction phase, require mortgage insurance or escrow. This commenter also recommended that the Bureau clarify the impact of the mortgage insurance and estimated escrow disclosures on the estimated total monthly payment disclosure where the construction phase is not a full year and, therefore, the first column in the projected payments table discloses a range of payments reflecting the interest-only payments during the construction phase and the amortizing payments for the permanent phase.” (82 FR 37760 )
The Bureau neither addressed the clarification requested about the “Total Monthly Payment” nor did they limit the disclosure of the permanent-phase “Mortgage Insurance” and “Escrow” amounts to cases where the construction-phase have neither:
“The Bureau agrees with the commenters that recommended incorporating additional discussion on disclosing escrow and mortgage insurance that was previously provided in an informal webinar by Bureau staff and incorporated into the Bureau’s TILA-RESPA Integrated Disclosure Rule Small Entity Compliance Guide. That discussion is added as comment app. D-7.v.C. Comment app. D-7.v.B is also revised to include a reference to mortgage insurance and escrow payments, which are reflected in the first column of the projected payments table along with the amortizing payments of the permanent phase if the creditor elects to disclosure the construction and permanent phases as a single transaction and the construction phase is not a full year.” (Ibid.)
Unfortunately, the result of following the above-referenced parts of Regulation Z could lead to an argument that disclosing an inaccurate minimum and maximum range in “Total Monthly Payment” could be a violation of 12 CFR Pt. 1026, Supp. I, Paragraphs 19(e)(1)(i) – 1 & 19(f)(1)(i) – 2 which require that the disclosures should be “based on the best information reasonably available to the creditor” and of 12 CFR § 1026.19(f)(1)(i) which requires the CD to reflect “the actual terms of the transaction.” It also could be considered a violation of Ibid. § 1026.17(c)(1), which requires that the disclosures “shall reflect the terms of the legal obligation between the parties.” There also may be UDAAP concerns.
To provide creditors with options on this matter, we have created a new ConformX System Default “Include MI And Escrow In Minimum Total Even If They Do Not Apply” (FI 126557). By default, our behavior will be to use the setting which calculates the “Total Monthly Payment” based on the new TRID 2.0 guidance. While this could lead to an inaccurate disclosure of the payment range, TILA specifically provides a “safe harbor” of protection which a creditor follows Regulation Z (including its Official Staff Commentary) in good faith:
“No provisions of [various civil liability sections of TILA] imposing any liability shall apply to any act done or omitted in good faith in conformity with any rule, regulation, or interpretation thereof by the Bureau or in conformity with any interpretation or approval by an official or employee of the Federal Reserve System duly authorized by the Bureau to issue such interpretations or approvals under such procedures as the Bureau may prescribe therefor, notwithstanding that after such act or omission has occurred, such rule, regulation, interpretation, or approval is amended, rescinded, or determined by judicial or other authority to be invalid for any reason.” (15 USCA § 1640[f])
“This commentary is the vehicle by which the Bureau of Consumer Financial Protection issues official interpretations of Regulation Z. Good faith compliance with this commentary affords protection from liability under section 130(f) of the Truth in Lending Act. Section 130(f) (15 U.S.C. 1640) protects creditors from civil liability for any act done or omitted in good faith in conformity with any interpretation issued by a duly authorized official or employee of the Bureau of Consumer Financial Protection.” (12 CFR Pt. 1026, Supp. I, Paragraph INTRO – 1)
If instead the Calculation System Default setting “Include MI And Escrow In Minimum Total Even If They Do Not Apply” is changed to “No” in ConformX, the minimum amount in the “Total Monthly Payment” range will only include mortgage insurance and escrow payments actually collected during the applicable time period (i.e. during the construction phase).
This setting is effective immediately. If you have any questions or concerns about this change, please contact Client Support at 1.800.497.3584. We strongly encourage clients to consult with their own licensed legal counsel on this matter.