TILA RESPA Integrated Disclosures. On October 3 rd, life as we know it will change forever. One of the new forms is.

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1 TILA RESPA Integrated Disclosures The Loan Estimate and Miscellaneous Requirements Lynne Murphy Breen, Esquire Sue Ellen Rogal, Esquire September 16, 2015 On October 3 rd, life as we know it will change forever Just kidding! On October 3 rd, the final rule from the Consumer Financial Protection Bureau will go into effect and the TILA RESPA Integrated Disclosure forms will be used for most residential transactions applied for on or after that date. One of the new forms is the Loan Estimate A three page form which looks like a combination TIL/GFE Designed to provide consumers with information which may be helpful in understanding the features, costsandrisksassociatedwiththemortgageloanfor which they are applying. Must be provided to consumers no later than three (3) business days after they submit a loan application. 1

2 Defined Terms Applicants The Borrowers/Consumers Business Day A day on which the creditor s offices are open to the public for carrying on substantially all of its business functions. For purposes of rescission and delivery, the term means all calendar days except Sundays and legal public holidays. Consummation The day the Consumer becomes contractually obligated to the Creditor on the loan. Both lenders and the CFPB seem to be suggesting that this is the date the borrower signs the note, regardless of escrow rules. In Massachusetts, consummation date will equal closing date for both purchases and refinances. Consumer A borrower in a residential loan transaction Creditor A loan originator, lender or bank ( Lender ) Variances The new rule contains 3 tolerance levels, but describes them as variances and expands the charges that cannot increase at closing to include charges for any service the borrower cannot shop for, as well as charges for any service provided by a subsidiary or affiliate of the creditor. Affected Transactions Both the Loan Estimate and Closing Disclosure must be used for most closed end consumer mortgages for which application is made on or after October 3, Transactions which are not affected Home equity lines of credit, reverse mortgages, mortgages secured by a mobile home (or other dwelling not attached to real property), no interest second mortgages made for down payment assistance, and energy efficiency or foreclosure avoidance loans are not subject to the new rule, and will continue to use the separate TIL and HUD forms now in use. The rule does not apply to commercial transaction. The rule does not apply to mortgage loans made by individuals who are not considered creditors because they make 5 or fewer mortgages per year (i.e. mortgages given by family members). 2

3 Transactions which are not affected Residential consumer loans not affected by the Rule will continue to use the separate TIL and HUD forms now in use. Commercial and non creditor loans may use the original HUD 1 SettlementStatement,if they so choose. Note: A home equity loan is subject to the new rule. The distinction is between line (open ended, consumer writes checks in amounts that vary) and loan (closed ended, one time payment to consumer). But before we go any further, take a deep breath and repeat after me: The Loan Estimate and the Closing Disclosure are just two more consumer disclosure forms, like the TIL and the GFE, and the HUD 1 Settlement Statement. I will learn to use the new forms, and, yes, even grow to like them. (And hopefully retire before they change again). I am not going to panic. What does it look like? The Loan Estimate is a 3 page document which contains information about Loan Terms, Projected Payments, Costs at Closing (broken down into Loan Costs, Other Costs and Calculating Cash to Close), and provides sections which allow the consumer to see the full impact of the mortgage loan (Comparison and Other Considerations). Each consumer must sign to acknowledge receipt of the Loan Estimate. 3

4 What does the Loan Estimate look like? What does the Loan Estimate look like? What does the Loan Estimate look like? Note that fees are listed alphabetically by section. 4

5 What does the Loan Estimate look like? Note that the names of all title related charges must begin with the word Title, and then listed alphabetically by the actual fee name What does the Loan Estimate look like? What does the Loan Estimate look like? 5

6 What does the Loan Estimate look like? About the Loan Estimate The Loan Estimate must contain a good faith estimate of credit costs and transaction terms It must be in writing and contain only the specific information set forth in the rule and as set forth in the CFPB s form Lenders may only use revised or correct Loan Estimates when specific requirements are met, such as when changed circumstances result in increased charges; technical errors, miscalculations or underestimates are NOT permissible reasons to revise a Loan Estimate About the Loan Estimate An application means the submission of a consumer s financial information for purposes of obtaining an extension of credit. Under the rule, an application consists of the submission of these six (6) pieces of information: The consumer s name; The consumer s income; The consumer s social security number to obtain a credit report; The property address; An estimate of the value of the property; and The mortgage loan amount sought. An application may be submitted in written or electronic format, which includes a written record of an oral application. 6

7 Who will prepare the Loan Estimate? The rule states that the Lender is responsible for the preparationof the Loan Estimate; creditors are required to act in good faith and exercise due diligence in obtain information necessary to complete the Loan Estimate. This requires communication and collaboration between Lender and service providers. If the Lender prepares the Loan Estimate, why should I care about it? The Lender is required to make sure that the data obtained is the best information available you can assist your Lender by providing detailed and accurate fees for your office and services obtained through your office (i.e. MLC, plot plan, title, recording fees, deed stamps). Be sure that all communications regarding fees contain a date and the name of your office, because the Lender must track what data was obtained when and from whom in order to document information disclosed on the Loan Estimate! If the Lender prepares the Loan Estimate, why should I care about it? One word: Tolerances. WhetherornotaLoan Estimate was made in good faith is determined by calculating the difference between the estimated charge originally provided in the Loan Estimate and the actual charges paid by or imposed on the consumer in the Closing Disclosure. Tolerance requirements vary depending upon the circumstances: If the borrower shopped for closing services (and the CFPB really means shopped picking your name off of a list from the lender isn t shopping), there is an open tolerance for related charges If the lender picked you, the tolerance is 10% However, if you are an affiliated provider for the lender, the tolerance is 0%. Being on the lender s list of closing attorneys is different than being an affiliated provider, so be sure to check with your lender! Charging a consumer less that the amount disclosed is considered to be in good faith, with out regard to any tolerance limitations, so if you don t provide accurate fees upfront, you may end up eating those costs at closing! 7

8 If the Lender prepares the Loan Estimate, why should I care about it? Because you want to be sure that the Lender is accurately quoting the Loan and Owner s Title Insurance premiums, in light of: The new tolerance requirements Thefactthatmanyout of state lenders are not used to quoting premium the way the CFPB requires (which, happily, is how we ve always done it in Massachusetts) If the Lender prepares the Loan Estimate, why should I care about it? Calculating premium under the rule: The rule requires that the Loan premium be disclosed in the Services You Can Shop For category. To calculate, multiply the loan amount (in thousands, rounded up to the nearest thousand) times $2.50 (up to $1,000,000). Ex. $265,500 Loan Amount: 2.50 x 266 = $ The rule requires that the Owner s premium be disclosed in the Other category (with the optional designation). To calculate, multiply the purchase price (in thousands, rounded up to the nearest thousand) times $4 (up to $1,000,000), plus the simultaneous fee, less the Loan premium. Ex. $409,900 Purchase Price: (4 x 410) = $1, If the Lender prepares the Loan Estimate, why should I care about it? It is also important that the fee names listed on the Loan Estimate match those listed on the Closing Disclosure, so either make a list of all possible fee names and send them to your lender or ask your lender for their list. All fees associated with title must be preceded by the word Title, as in Title Deed Preparation, Title Document Preparation, Title Settlement Agent Fee, Title Title Examination. 8

9 Who will be responsible for delivery of the Loan Estimate? The Lender is responsible for delivering the Loan Estimate (or placing it in the mail) no later than the third business day after receipt of the consumer s loan application. For purposes of providing the Loan Estimate,abusiness day is a day on which the lender s offices are open to the public for carrying out substantially all of its business functions. (Note that this is different than the definition of business day used when counting the days to ensure that the consumer receives the Closing Disclosure on time.) What will be the impact of the (optional) designation for the owner s title insurance premium on the Loan Estimate and Closing Disclosure? Optional? If title insurance is optional, why is it required by the lender and considered a Loan Cost? Spread the word: An owner s policy isn t (optional), it s necessary! What are the lenders saying about the Loan Estimate? Two words: Collaboration and Communication Old school , fax, overnight delivery, mail (yikes!) not so much Use of a third party portal where information will be exchanged between the lender s software and the attorney s closing software yup! (Have you heard about platforms like RealEC, DocMagic, ELinks and Bee s Path?) 9

10 What questions should you be asking your lenders with regard to the production of the Loan Estimate? Do they have your complete fee schedule, including fees for MLCs, plot plans, recording fees/deed stamps, and title insurance rates? Do they have a list of fee names that will be used on the Loan Estimate and Closing Disclosure or would they like one from you? Ask for a copy of their revised Closing Instructions which will be used for all TRID impacted closings How will you and they exchange data? Miscellaneous Requirements Timeshares: Loans secured by interests in timeshare plans are still subject to the TILA RESPA rule, but because these loans may be consummated within a few days, the CFPB adopted abbreviated timing, delivery, and disclosure obligations for these loans when consummation occurs within 3 business days of the application. For these loans, creditors may forego a Loan Estimate and provide only the Closing Disclosure. In addition, the waiting periods and timing requirements applicable to most TRID loans are inapplicable to loans secured by timeshare interests. Instead, creditors are required to ensure only that the consumer received the Closing Disclosure no later than consummation. For details on timeshare transactions, see Comment 19(f)(1)(iii) 3. Miscellaneous Requirements Imposing a Fee: A creditor or other person may not impose any fee on a consumer in connection with a mortgage application until the consumer has received the Loan Estimate and has indicated intent to proceed with the transaction. This restriction includes limits on imposing: Application fees; Appraisal fees; Underwriting fees; and Other fees imposed on the consumer. The only exception is for a bona fide and reasonable fee for obtaining a consumer s credit report. 10

11 Miscellaneous Requirements Imposing a Fee: A fee is imposed by a person if the person requires a consumer to provide a method for payment, even if the payment is not made at that time. This would include, for example: A creditor or mortgage broker requiring the consumer to provide a check to pay for a processing fee before the consumer receives the Loan Estimate, even if the check is not to be cashed until after the Loan Estimate is received and the consumer has indicated an intent to proceed A creditor or mortgage broker requiring the consumer to provide a credit card number for a processing fee before the consumer receives the Loan Estimate, even if the credit card will not be charge until after the Loan Estimate is received and the consumer has indicated an intent to proceed Miscellaneous Requirements Intent to Proceed: A consumer indicates intent to proceed with the transaction when the consumer communicates, in any manner, that the consumer chooses to proceed after the Loan Estimate has been delivered. This may include: Oral communication in person immediately upon deliver of the Loan Estimate; Oral communication over the phone, written communication via , or signing a pre printed form after receipt of the Loan Estimate A consumer s silence is not indicative of intent to proceed. The creditor must document the communication of intent to proceed in order to satisfy the record retention requirements of the rule. Miscellaneous Requirements Estimates of costs and terms given prior to the Loan Estimate: The rule does not prohibit a creditor or other person from providing a consumer with estimated terms or costs prior to the consumer receiving the Loan Estimate. However, if a person provides a consumer with a written estimate of terms or costs specific to that consumer before the consumer receives the Loan Estimate, theformmaynot have headings, content, and format substantially similar to the Loan Estimate or Closing Disclosure, and it must clearly and conspicuously stateatthetopofthefrontofthefirstpageofthewrittenestimate the following statement in font size no small than 12 point font: Your actual rate, payment, and costs could be higher. Get an official Loan Estimate before choosing the loan. The CFPB has provided a model form see Form H 26 of appendix H to Regulation Z. 11

12 Miscellaneous Requirements Additional verifying information other than the 6 pieces before providing a Loan Estimate: A creditor or other person may not condition providing the Loan Estimate on a consumer submitting document verifying information related to the consumer s mortgage loan application before providing the Loan Estimate. For example: A creditor may ask for the sale price and address of the property, but may not require the consumer to provide a purchase and sale agreement to support the information the consumer provides orally before the creditor provided the Loan Estimate. A mortgage broker may ask for the names, account numbers, and balances of the consumer s checking and savings accounts, but the mortgage broker may not require the consumer to provide bank statements or similar documentation to support the information orally provided by the consumer before the creditor provides the Loan Estimate. Miscellaneous Requirements Special Information Booklet (RESPA Settlement Costs Booklet) Creditors must provide a copy of the special information booklet to consumer who apply for a consumer credit transaction secured by real property, except: If the consumer is applying for a HELOC, the creditor, or mortgage broker, can provide a copy of the brochure entitled When Your Home is On the Line: What You Should Know About Home Equity Lines of Credit instead of the special information booklet The creditor need not provide the special information booklet if the consumer is applying for a real property secured consumer credit transaction that does not have the purpose of purchasing a one to four family residential property, such as a refinancing, a closed end loan secured by a subordinate lien, or a reverse mortgage. Creditors must deliver, or place in the mail, the special information booklet not later than three (3) business days after receiving the consumer s loan application. Miscellaneous Requirements Other Disclosures: Escrow Closing Notice The Escrow Closing Notice must be provided prior to cancelling an escrow account to any consumers for whom an escrow account was established in connection with a closed end consumer credit transaction secured by a first lien on real property or a dwelling, except for reverse mortgages. The creditor or servicer must provide consumers with the notice no later than three (3) business days before the consumer s escrow account is cancelled. (See (e)(1) for details about the Notice.) Partial Payment Disclosure If a lender or servicer is required by the existing Regulation Z to provide mortgage transfer notices when the ownership of a mortgage loan is being transferred, that notice must include information related to the partial payment policy that will apply to the mortgage loan. This post consummation partial payment disclosure is required for a closed end consumer credit transaction secured by a dwelling or real property, other than a reverse mortgage. (See (d)(5) for details about the Disclosure.) 12

13 Miscellaneous Requirements Practical Implementation and Compliance Issues: Identify all affected staff and determine training needs closing and post closing staff and processes are likely to be most broadly impacted by the rule changes Review your technology platforms hardware and software may need to be updated Educate your buyers, sellers and realtors by walking them through the transaction timeline (see chart on next slide) encourage them to review the P&S to be sure that amendments and extensions comply and to obtain payoffs and final readings as early in the transaction as possible Miscellaneous Requirements Questions to Ask Your Lenders: Who is preparing the Closing Disclosure? If they are, how do they want you to provide data through a portal, by , by mail or hand delivery? If you are preparing it, how will they get their information to you? How will they send the completed Closing Disclosure to you for approval before delivery to the consumer? How will the Closing Disclosure be delivered to the consumer? How will changes be made to the Closing Disclosure after it is provided to the borrower? 13

14 Questions? About our Companies Fidelity National Financial, Inc. (FNF), is a leading provider of title insurance, technology and transaction services to the real estate and mortgage industries. It is a Fortune 500 company, currently listed at #314. Fidelity National Title Group (FNTG), a subsidiary of FNF, provides title insurance and escrow services. Its underwriters, which include Chicago Title Insurance Company and Commonwealth Land Title Insurance Company, issue approximately half of the title insurance policies in the United States. 14