CFPB’s new FAQs on the TRID BUILD Act Exemption
The CFPB has issued new TRID FAQs on May 14, 2021 to address the Building Up Independent Lives and Dreams Act (“BUILD Act” or “Act”). The Act was enacted on January 13, 2021 to add an exemption from the TRID rule’s integrated disclosure requirement for “charitable mortgage loan transactions.”
The Act adds a new statutory exemption from the TRID disclosure requirement to TILA and RESPA, 15 U.S.C. § 1604(e) and 12 U.S.C. § 2603(d), respectively. The legislation allows use of the old forms, the HUD–1 and the Good Faith Estimate (“GFE”) under Regulation X, and the Truth in Lending statement (“TIL”) under Regulation Z for charitable mortgage loans, even if they are subject to TRID’s integrated disclosure requirement. Specifically, the legislation states that the old forms can be used for the integrated disclosure requirement for a “residential mortgage loan” that is offered at 0% interest with only “bona fide” and “reasonable” fees and that is “primarily for charitable purposes” by a 501(c)(3) organization exempt from taxation.
The legislation does not define the terms “residential mortgage loan,” “bona fide,” “reasonable,” or “charitable purposes.” This could lead to some confusion about what loans are actually covered by this statutory partial exemption. TILA, but not RESPA, has a definition of the term “residential mortgage loan,” which is generally, closed-end consumer credit transactions that are “secured by a mortgage, deed of trust, or other equivalent consensual security interest on a dwelling or on residential real property that includes a dwelling.” 15 U.S.C. § 1602(dd). Note that this definition does not line up exactly with the types of loans that are covered by the integrated disclosure requirement.
Also note that the TRID rule itself already had a regulatory exemption from the requirement to provide the integrated disclosures and the special information booklet for loans that meet certain criteria under 12 C.F.R. § 1026.3(h). These criteria are:
1. The transaction is secured by a subordinate lien;
2. The transaction is for the purpose of:
a. Downpayment, closing costs, or other similar home buyer assistance, such as principal or interest subsidies;
b. Property rehabilitation assistance;
c. Energy efficiency assistance; or
d. Foreclosure avoidance or prevention;
3. The credit contract does not require the payment of interest;
4. The credit contract provides that repayment of the amount of credit extended is:
a. Forgiven either incrementally or in whole, at a date certain, and subject only to specified ownership and occupancy conditions, such as a requirement that the consumer maintain the property as the consumer's principal dwelling for five years;
b. Deferred for a minimum of 20 years after consummation of the transaction;
c. Deferred until sale of the property securing the transaction; or
d. Deferred until the property securing the transaction is no longer the principal dwelling of the consumer;
5. The costs payable by the consumer in connection with the transaction at consummation are limited to:
a. Recording fees;
b. Transfer taxes;
c. A bona fide and reasonable application fee; and
d. A bona fide and reasonable fee for housing counseling services;
6. The total of costs payable by the consumer for the application fee and the housing counseling services are less than 1% of the amount of credit extended.
This exemption allows the creditor to provide either the TIL required under 12 C.F.R. § 1026.18 or the integrated disclosures required under 12 C.F.R. § 1026.19(e) and (f).
The CFPB issued FAQs to answer certain questions regarding these two exemptions, likely because of the potential for confusion regarding how these exemptions worked in tandem. The first FAQ was whether housing assistance loans are covered by the TRID rule, and the answer is generally yes. But the CFPB notes that creditors can choose one of the two exemptions if they are applicable. The FAQs then cover the criteria for each exemption. However, for the BUILD Act exemption, the FAQs simply cross-reference the statutory citations and do not interpret any of the undefined terms or otherwise provide guidance regarding compliance.
Regarding the operation of the exemptions, the FAQs note that regulatory exemption provides an exemption from the integrated disclosures and the special information booklet, and that the regulatory exemption does not require the creditor to provide the GFE or the HUD-1. The FAQs note that this differs from the BUILD Act exemption, in that the statutory exemption requires the creditor to provide the GFE and HUD-1, as well as the TIL, and does not exempt the creditor from providing the special information booklet.
The FAQs also interpret the BUILD Act exemption as allowing the creditor to decide to provide the integrated disclosures instead of the GFE, HUD-1, and TIL. But the FAQs caution that the creditor must comply with all applicable requirements for whatever disclosures it provides.
Though it is helpful that the CFPB has issued FAQs on this topic, it is unfortunate that the FAQs do not provide guidance regarding the undefined terms under the BUILD Act exemption, leaving some compliance uncertainty on the table. But we hope this set of FAQs indicates that the CFPB has plans to continue issuing FAQs on other TRID hot topics.
The FAQs are available at: https://www.consumerfinance.gov/compliance/compliance-resources/mortgage-resources/tila-respa-integrated-disclosures/tila-respa-integrated-disclosure-faqs/#housing-assistance-loans
Please also note that we have been hearing that federal and state regulators are getting tougher in their TRID exams. This means the prospects for TRID supervisory issues and enforcement are increasing. Richard Horn is the foremost TRID expert, as he led the TRID final rule and the design of the disclosures while a Senior Counsel and Special Advisor at the CFPB. Please contact Richard at rich@garrishorn.com if you want more information about the issues in this blog post or the TRID rule generally.
