Page 13 - 2Q 2018 June Reporter

TRID and “Gifts of Equity”—
Still No Answers
really applicable toward closing costs, and also
requires a bizarre and unexplained positive offset
in Adjustments and Other Credits just to make
the Calculating Cash to Close table to balance
out correctly. To make matters more troublesome,
investors often limit any seller credit to a hard cap
(such as 6% of the sales price), which could prove
difficult for a large “gift of equity” being disclosed as
a Seller Credit.
The third approach appears to meet the
investor requirement that the “gift of equity” be
contained within the closing documentation;
however, that gift of equity doesn’t mathematically
factor into any of the calculations on Page 3, which
may lead auditors, examiners, investors or even
the borrower themselves to overlook the fact that a
gift of equity was even present in the transaction.
It also may create a discrepancy between the
disclosed “Sales Price” on the Closing Disclosure
and the “Sales Price” used to calculate LTV, which
could give rise to questions of whether or not the
disclosure is being presented in good faith.
All the pros and cons being weighted, we
feel like right now, the best approach to “a gift of
equity” is in fact Approach #3: to disclose the lower
sales price for the Loan Estimate and Closing
Disclosure, and then mention the “gift of equity” in
an addendum to the Closing Disclosure. First of all,
this is supported by the regulation. Secondly, while
this may at first glance appear to cause issues with
LTV, note that federal real estate lending standards
and the Sale Price figure do not directly pertain to
one another—all the lending standards say is, “For
loans to purchase an existing property, the term
“value” means the lesser of the actual acquisition
cost or the estimate of value.” They do not contain
any cross-reference to the TRID rules. Disclosing
a lower sales price on the TRID forms and then
mentioning the “gift of equity” in an addendum, both
satisfies any investor requirements and also makes
the math more simple for a borrower to understand;
both of which are essential underpinnings of
TRID. We feel that these benefits outweigh any
generalized concerns about “good faith” regarding
the disclosed sales price.
10
June 2018
continued
As with many things TRID, we continue to await
guidance from the CFPB and other regulatory
agencies on what the appropriate action for
disclosing “gifts of equity” on Closing Disclosures
will be going forward. In the meantime, please be
sure to stick with Compliance Alliance for updates,
and let us know if you have any questions regarding
this perplexing topic!
First link: https://www.federalregister.gov/
documents/2017/08/11/2017-15764/
amendments-to-federal-mortgage-
disclosure-requirements-under-the-truth-
in-lending-act-regulation-z
Second link: https://www.fanniemae.com/content/
guide/selling/b3/4.4/02.html
Third link: https://www.federalregister.gov/
documents/2017/08/11/2017-15764/
amendments-to-federal-mortgage-
disclosure-requirements-under-the-truth-
in-lending-act-regulation-z#p-1327
Fourth link: https://www.consumerfinance.
gov/eregulations/1026-Subpart-E-
Interp/2018-04823#1026-38-i-3-Interp-1
Staff Author Bio – James
McGuire
James McGuire has worked as an attorney and
legal researcher in the financial industry since 2010.
After graduating from the University of Minnesota
Law School in 2007, he served as Assistant
General Counsel for the Texas Attorney General
in the Open Records Division, and later worked
as a solo practitioner in the Austin area. Prior to
joining Compliance Alliance in July of 2015, James
assisted a major mortgaging servicer with the OCC’s
independent foreclosure audit and was an SEC filing
researcher for a major financial and legal research
firm. He has extensive first-hand experience with
open records, mortgage servicing, consumer law
and securities regulation.
IllInoIs RepoRteR