COVID-19 Pandemic: Waiting Periods and Changed Circumstance

QUESTION

I am a branch manager with a mortgage lender. We have offices in 20 states. My concern right now is with TRID’s waiting period requirement. 

During the pandemic, I am being told that the personal financial emergency wavier is still on a case by case basis, even though the pandemic is about as much of a financial emergency as I can think of. 

What’s the deal here? Is the pandemic considered to be a personal financial emergency?

ANSWER

I sense your frustration. The personal financial emergency waiver has always been controversial, especially because deciding in favor of the waiver is often a case by case decision process. The crux of the matter is a determination as to what constitutes a bona fide personal financial emergency.

For some context, under TRID creditors generally must deliver or place in the mail the Loan Estimate no later than seven business days before consummation. Consumers must receive the Closing Disclosure no later than three business days before consummation. So, we need to get into the weeds a bit to understand the issue.

Under the TRID Rule, creditors generally must deliver or place in the mail the Loan Estimate to consumers no later than seven business days before consummation and consumers must receive the Closing Disclosure no later than three business days before consummation. [12 CFR 1026.19(e)(1)(iii)(B); 1026.19(f)(1)(ii)(A)]

The Regulation Z Rescission Rules also provide consumers with at least three business days from consummation to rescind certain credit obligations secured by the consumer’s principal dwelling, and creditors are required to provide consumers with a disclosure informing them of this rescission right. [12 CFR 1026.15(a); 1026.23(a)]

After receiving the required disclosure(s), a consumer may modify or waive these waiting periods if the consumer determines that he or she needs credit extended to meet a bona fide personal financial emergency. [12 CFR 1026.15(e); 12 CFR 1026.19(e)(1)(v), (f)(1)(iv); 12 CFR 1026.23(e)]

For the waiting periods to be modified or waived, the creditor must have a dated written statement by the consumer that:

(1) describes the emergency,
(2) specifically modifies or waives the waiting period, and
(3) bears the signature of all consumers who are primarily liable on the legal obligation (for the TRID Rule) or who are entitled to rescind (for the Regulation Z Rescission Rules). [12 CFR 1026.15(e); 12 CFR 1026.19(e)(1)(v), (f)(1)(iv); 12 CFR 1026.23(e)]

In the Commentary to the TRID Rule modification and waiver provisions, there is this clarification: 

“[t]he consumer must have a bona fide personal financial emergency that necessitates consummating the credit transaction before the end of the waiting period.”

Furthermore, the Commentary clarifies that whether these conditions are met is determined by the facts or circumstances of individual situations, and provides one example, to wit, the imminent sale of the consumer’s home at foreclosure, where the foreclosure sale will proceed unless loan proceeds are made available to the consumer during the waiting period. [See Comments 19(e)(1)(v)-1; 19(f)(1)(iv)-1]

Explicitly, the Commentary to the Regulation Z Rescission Rules waiver provision similarly states that for a consumer to waive the rescission waiting period, “the consumer must have a bona fide personal financial emergency that must be met before the end of the rescission period.” [Comment 23(e)-1]

Hopefully, now that I’ve laid out a rough sketch of the regulatory outline, let’s turn to answer your question. At the end of April, the CFPB addressed the scenario of the pandemic affecting the waiting period requirements.[i] The Bureau issued an Interpretive Rule, which would go into effect when published in the Federal Register. It was published there on May 4, 2020, so that is the effective date. [85 FR 26319, pp 26319-26321]

Pursuant to the Interpretive Rule, the following decision tree may be applied:

IF:

(1) A consumer determines that the extension of credit is needed to meet a bona fide personal financial emergency,

(2) The consumer’s brief statement describing the emergency identifies a financial need that is due to the COVID-19 pandemic, and

(3) The emergency necessitates consummating the credit transaction before the end of an applicable TRID Rule waiting period or must be met before the end of the Regulation Z Rescission Rules waiting period,

THEN:

The consumer has a bona fide personal financial emergency that would permit the consumer to utilize the modification and waiver provisions, subject to the applicable procedures set forth in the TRID Rule and the Regulation Z Rescission Rules.

Now, here’s a question that you didn’t ask, but is important to pose:

Is the pandemic a Changed Circumstance?

According to the Bureau, the answer is Yes.

Again, some context. Under the TRID Rule, creditors must estimate in good faith the costs that consumers will incur in connection with their mortgage transaction and disclose them on the Loan Estimate. [12 CFR 1026.19(e)(3)]

For purposes of determining good faith under the TRID Rule, creditors may use revised estimates of such costs in a limited number of situations pursuant to Regulation Z, § 1026.19(e)(3)(iv). [12 CFR 1026.19(e)(3)(iv); 12 CFR 1026.19(e)(4)(i)] One such scenario is if there are “changed circumstances” that affect the settlement charges consumers would incur. [12 CFR 1026.19(e)(3)(iv)(A)]

So, does the COVID-19 pandemic constitute a valid changed circumstance? 

Yes, it does!

The TRID Rule specifies that changed circumstances include “an extraordinary event beyond the control of any interested party,” and the Commentary clarifies that a “war or natural disaster” is an example of such an extraordinary event. [12 CFR 1026.19(e)(3)(iv)(A)(1); Comment 19(e)(3)(iv)(A)-2]

According to the CFPB, “economic disruptions and shortages during the COVID-19 pandemic may affect the ability of stakeholders to provide accurate estimates of some settlement charges.”[ii]

The CFPB has taken the position that the COVID-19 pandemic is an extraordinary event that permits creditors to provide consumers with revised estimates reflecting changes in settlement charges.

So, illustratively, for purposes of establishing good faith, a creditor could provide a revised estimate of the appraisal fee based on changed circumstances where 

(1) the amount disclosed on the Loan Estimate was based on a reasonable market price at the time of the estimate, and 

(2) the actual appraisal fee was higher because of a shortage of available appraisers due to the effects of the COVID-19 pandemic.

Explicitly, the CFPB has concluded that, as with wars or natural disasters, the COVID-19 pandemic is an example of an extraordinary event beyond the control of any interested party, and thus is a changed circumstance. 

Therefore, according to the CFPB, for purposes of determining good faith, creditors may use revised estimates of settlement charges that consumers would incur in connection with the mortgage transaction if the COVID-19 pandemic has affected the estimate of such settlement charges. [12 CFR 1026.19(e)(4)(i)]

Jonathan Foxx, Ph.D., MBA
Chairman & Managing Director
Lenders Compliance Group

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[i] Application of Certain Provisions in the TILA-RESPA Integrated Disclosure Rule and Regulation Z Right of Rescission Rules in Light of the COVID-19 Pandemic, 12 CFR Part 1026, Interpretive Rule, Bureau of Consumer Financial Protection

[ii] Idem