Pub. 15 2018 Issue 2

Issue 2 • 2018 23 O V E R A C E N T U R Y : B U I L D I N G B E T T E R B A N K S - H E L P I N G N E W M E X I C O R E A L I Z E D R E A M S I n August of 2017, the Consum - er Financial Protection Bureau (CFPB) finalized their chang- es to the TILA/RESPA Inte - grated Disclosures Rule (TRID). After what many called a disaster of an initial launch, these changes finally addressed lingering questions about the rule, especially in the areas of construc- tion lending and simultaneous second lien purchase loans. Unfortunately, the changes still failed to address other continuing concerns, among them how to disclose “gifts of equity” on the Loan Estimate and Closing Disclosure. “Gifts of equity” are essentially a discount on the sale price of the proper- ty below market value. The seller agrees to sell the property to the buyer for X number of dollars below what the prop- erty would go for on the open market; the X dollar figure is then considered a “gift of equity.” These “gifts” aren’t an issue with portfolio loans with a loan- to-value ratio (LTV) on the property below 80% — using the actual lower sales price as the value. The issues appear when the loan amount exceeds 80% of the actual sales price or in the case of investment loans— the issue be- TRID and “Gifts of Equity” — Still No Answers By James Maguire, Associate General Counsel, Compliance Alliance n TRID continued on page 24 ing documentation as investors tend to require gifts of equity to be clearly disclosed on closing documents, or how a “gift of equity” must be factored into the actual sales price of the proper- ty for LTV purposes. So, if you’re required to disclose a “gift of equity” somehow on the TRID forms, what do you do? There are a few different schools of thought on this, and while there are slight variations for each, three basic approaches have been suggested. For the first approach (approach #1), some believe this amount should be disclosed as “Down payment/ Funds from Borrower” and then offset with a negative amount in “Adjustments and Other Credits” in the Calculating Cash to Close table. (In Section L of the Closing Disclosure, the gift could appear in Other Credits, with a note that the fee is “P.O.C.” and paid by the Seller). For the second approach (ap- proach #2), others feel you should put the amount in Seller Credits, offsetting that with a positive number in Adjust- ments and Other Credits and a figure in Section K under “Adjustments”. For both approach #1 and approach #2, the “gift of equity” would be disclosed in Section N, too, effectively reducing the amount of money remitted to the seller at closing. Finally, for the third approach (approach #3), still others feel like the best thing to do is simply to re- duce the overall “Sales Price of Proper- ty” down to what the property actually is selling for (market price minus the “gift of equity”), and then mention the “gift of equity” amount in an addendum to the Closing Disclosure (leaving it off the Loan Estimate entirely). Each of these three approaches carries certain negatives. The first approach, for instance, seems some- what to mimic the process for disclos- ing gifts from family members prior to closing. But as the commentary to the regulation states, “Amounts expected to be paid at closing by third parties not otherwise associated with the transac- tion, such as gifts from family mem- bers . . . are included in the amount dis- closed under [Adjustments and Other Credits].” It is clear that this approach is intended only for gifts from third parties, and not from parties involved in the transaction itself, which the sell-