Video: TRID Total of Payments Disclosure
In this Compliance Clip (video), Adam goes into a little bit of a deep dive to explain the Total of Payments disclosure on the Closing Disclosure. This a TRID and lending topic, which is especially helpful for lenders or somebody who's responsible for the loan department.
Video Transcript
The following is a transcript of this video.
This Compliance Clip is going to talk about the TRID Total of Payments disclosure. So this is a TRID and lending topic. The question we have here is “What is the Total of Payments disclosure on the Closing Disclosure?” This would be a good topic for you as a lender, maybe you're a lender, maybe you’re somebody who's responsible for the loan department. If I was a lender and I'm going through the Closing Disclosure, talking to customers, explaining the different disclosures, sometimes it's good to have a deep dive of the various areas. And so what I wanted to do with this Compliance Clip is answer and go into a deep dive as to what is the Total of Payments disclosure on the Closing Disclosure. Kind of give you a deeper understanding. Of course, it feels like that the answer's going to be ‘it's the total of payments’, which is the short answer, but the reg, the commentary, and, actually, there is a frequently asked question that addresses this and is a little bit complex. There's a little bit of complexity in this. So let's take a deep dive and look at what the Total of Payments disclosure is on the Closing Disclosure.
We'll start by looking at Regulation Z and the actual citation is in 1026.38(o)(1), and this really tells us what has to be on the Closing Disclosure. Under 1026.38(o)(1), it tells us that we must include on our Closing Disclosure the “Total of Payments”, using that term and expressed as a dollar amount, and a statement that the disclosure is the total the consumer will have paid after making all payments of principal interest, mortgage insurance, and loan cost as scheduled. So it's pretty straight forward. Closing disclosure gives us some guidance as to what is included.
Now, the commentary says it in a little bit different way. It says, “The total of payments is the total, expressed as a dollar amount that the consumer will have paid after making all payments of principal, interest, mortgage insurance, and loan costs as scheduled through the end of the loan terms.” So it's everything you paid during the loan. It's not everything because there's some different things that come into play when we look at the commentary and the frequently asked question, and we're actually going to find all of these different pieces. It's not too complex, but let's take a look and see what the Frequently Asked Question says.
There are some frequently asked questions that explain this. Frequently Asked Question # 1 says that the Total of Payments does not include payments of principal, interest, mortgage insurance, or loan costs, this the key part here, that the seller or other party pay. So, it does include those things that the consumer pays, but it does not include the things that the seller or other party pays. And the other party could be the creditor. These are things that may offset in whole or in part, the amount the consumer would pay. Things that are offset for a specific credit, for example, through a specific seller or lender credit, because these amounts are not paid by the consumer. So, it makes sense.
Now it's a bit tricky here because the lender credits that are specific lender credits are not included in the total of payments. However, general credits that are generalized payments from the creditor, the seller or other party, to the consumer that do not pay for a particular fee, do not offset amounts for purposes of the total of payments calculation. So, lender credits that are specific credits do count, they are taken away. The general credits are not going to be taken away. So that is a little bit of a quirk and that's why we take a look at this and do a little bit of a deep dive.
The Frequently Asked Question explains a few other things. It kind of defines some things for us. It's not rocket science here. Nothing should be new, but it says in calculating the Total of Payments, payments of principal are defined as the total consumer will pay towards the principal on the loans through the end of the loan term. Payments of interest are the total the consumer will pay towards interest on the loan through the end of the loan term and includes prepaid interest. So pre-paid interest must go with his calculation. Also, payments of mortgage insurance are the total the consumer will pay towards mortgage insurance or any functional equivalent, so not just mortgage insurance, but functional equivalents, and includes amounts for prepaid or escrowed mortgage insurance. This would be things like similar coverage for mortgage insurance, from the Department of Veteran Affairs and VA has their own fee, or the Department of Agriculture, those guarantees under USTA loans. So there's a number of different things that are equivalent to mortgage insurance and those are included in this calculation for mortgage insurance. Payments of loan costs are the total the consumer will pay towards the costs disclosed on the Loan Costs Table and designated as “Borrower-Paid”, not seller-paid or lender-paid, but borrower-paid on the Closing Disclosure under the Closing Cost Details. So that's some further explanation there.
One final thing on the Total of Payments, they do consider the accuracy. You have to get this accurate. Under the regulation itself, this actually comes right out of the regulation in Regulation Z. It says that the disclosed finance charge and other disclosures affected by the disclosed finance charge, including the amount financed and the annual percentage rate, shall be treated as accurate, meaning that it's okay and you don't have to correct it, if the amount disclosed as the finance charge is either number one, understated by no more than a hundred dollars. So if it’s understated by $150, you have a problem. The commentary actually gives an example where it's understated by $150, it is not accurate. So if it's understated by no more than a hundred dollars, that's okay. Or if you overstate it. So if it's greater than the amount required to be disclosed, you’re okay. Overstating and being conservative is okay when it comes to the total of payments in regards to accuracy.
That's Total of Payments in a nutshell. This is a Compliance Clip.