Under TRID 1.0, no guidance was given as to whether or not negative prepaid interest (which normally exists due to a refund by the creditor to the borrower when the first monthly mortgage payment occurred on the first day of a month following closing) should be included in the first of the “In 5 Years” disclosures on the LE (aka “TP5Y”) and the “Total of Payments” disclosure on the CD (aka “TOP”), as well as the Total Interest Paid disclosures on both documents (aka “TIP”).
Under TRID 2.0, the CFPB finalized new guidance which held that such negative prepaid interest should be included in the calculation of TIP, which effectively lowers the total amount disclosed (see 12 C.F.R. Pt. 1026, Supp. I, Paragraphs 37[l] – 1 & 38[o] – 1). However, such guidance was not extended to the TP5Y and TOP calculations, leaving both the initial questions raised under TRID 1.0 unanswered and creditors to draw their own conclusions and amounts to disclose (see https://compliance.docutech.com/2018/11/21/calculation-setting-updates-treatment-of-negative-prepaid-interest-in-the-calculation-of-the-top-tp5y/ for details).
One of the recent TILA-RESPA Integrated Disclosure FAQs provided by the CFPB (available at: https://www.consumerfinance.gov/policy-compliance/guidance/mortgage-resources/tila-respa-integrated-disclosures/tila-respa-integrated-disclosure-faqs/) now clarifies that a prepaid interest credit may be used to reduce the amount disclosed for the Total of Payments on the Closing Disclosure:
“When calculating the Total of Payments, if the loan includes negative prepaid interest, it is accounted for as a negative number. Comment 38(g)(2)-2. Using a negative number will offset the interest the consumer will have paid and therefore reduces the amount disclosed as the Total of Payments.” (Total of Payments FAQ # 2)
“Lower TP5Y/TOP Amount by Including Negative Per Diem Interest” will be set to “Yes” for all loans globally to follow this new guidance. If there is negative prepaid interest, it will be used to lower the following values:
- Total Interest Paid After Five Years (TP5Y) on the Loan Estimate and
- Total of Payments (TOP) on the Closing Disclosure.
This change is currently available on ConformX Stage for testing and will be put into Production June 27, 2020. If you have any questions or concerns about these changes, please contact Client Support at 1.800.497.3584.