Reed Smith Client Alerts

On April 26, 2018, the Bureau of Consumer Financial Protection (“Bureau”) adopted an amendment to its Truth in Lending/RESPA Integrated Disclosures Rule (“TRID”), which, effective June 1, 2018, finally closes what has come to be known as the “black hole.”1  Below is an explanation of what exactly is the black hole, how and why the bureau closed it and what that means for mortgage lenders.

What is the black hole?

Requirement to provide loan estimate. To help consumers shop for a home mortgage loan, TRID requires creditors, within three business days after receiving a loan application from a consumer, to give the consumer a written loan estimate (“LE”) on a prescribed form.2 The LE sets forth the basic terms of the loan for which the consumer is applying and “good faith” estimates of the various fee and charges the consumer will have to pay in connection with the loan.3 The disclosed loan terms and fee estimates on the LE must remain fixed for at least 10 business days.4 During this 10-day period the consumer may use the LE to shop with other mortgage lenders for better terms and fees. If, by the end of this 10-day shopping period, the consumer has not informed the creditor that he/she wishes to proceed with the application, the LE expires and the creditor is free to issue a different one.5

Good faith/Tolerances. With two exceptions, TRID provides that fee estimates on the LE are subject to a “zero tolerance,” meaning that to be considered in “good faith,” they must not exceed the amounts the consumers actually have to pay for those particular services (“Zero Tolerance Fees”).6 The two exceptions are for estimates on the LE for (1) certain fees paid to third-party service providers, which are considered to be in “good faith” so long as the sum of the actual amounts the consumer pays for these services does not exceed the sum of the estimates by more than 10% (“10% Tolerance Fees”), and (2) certain other fees, which are considered to be in “good faith” so long as they are based on the best information reasonably available to the creditor at the time (“changeable fees”).7 Creditors must make refunds or provide credits to consumers whenever these tolerances are exceeded.8