Compliance Q&A


Regarding TRID 2.0, How should a Principal Reduction be Disclosed on the Closing Disclosure ?

TRID 2.0 provides new guidance on how a principal reduction should be disclosed on the Closing Disclosure, which (primarily) includes the following:

A principal reduction that occurs immediately or very soon after closing must be disclosed in the summaries of transactions table on the standard Closing Disclosure pursuant to § 1026.38(j)(1)(v) [Lines K.04 through K.07] or in the payoffs and payments table on the alternative Closing Disclosure pursuant to § 1026.38(t)(5)(vii)(B) [“K. Payoffs and Payments”]. The disclosure of a principal reduction under § 1026.38(j)(1)(v) or (t)(5)(vii)(B) includes the following elements: (1) The amount of the principal reduction; (2) the phrase ‘principal reduction’ or a similar phrase; (3) for a principal reduction disclosure under § 1026.38(t)(5)(vii)(B) only, the name of the payee; (4) if applicable to the transaction, the phrase ‘Paid Outside of Closing’ or ‘P.O.C.’ and the name of the party making the payment; and (5) if the principal reduction is used to satisfy the requirements of § 1026.19(f)(2)(v) [tolerance cure], a statement that the principal reduction is being provided to offset charges that exceed the legal limits, using any language that meets the clear and conspicuous standard under § 1026.38(t)(1)(i)

If a creditor is required to disclose the name of the party making the payment or that the principal reduction is being provided to offset charges that exceed the legal limits, and there is insufficient space under the § 1026.38(j)(1)(v) or (t)(5)(vii)(B) disclosure for these elements of the principal reduction disclosure, the creditor may omit these elements from the § 1026.38(j)(1)(v) or (t)(5)(vii)(B) disclosure. If the creditor omits these elements from the § 1026.38(j)(1)(v) or (t)(5)(vii)(B) disclosure, the creditor must provide a complete principal reduction disclosure under an appropriate heading on an additional page, in accordance with § 1026.38(j) and (t)(5)(ix), as applicable, with a reference to the abbreviated principal reduction disclosure under § 1026.38(j)(1)(v) or (t)(5)(vii)(B).” (12 CFR Pt. 1026, Supp. I, Paragraph 38 – 4; 82 FR 37785 [2017])

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