1 A Primer on the New CFPB Regulations Governing Residential Closings. Navigating the New Forms (Loan Estimate and Closing Disclosure.) For loan applications received beginning October 3, Disclaimer: Nothing in this presentation constitutes legal advice. This is for informational purposes only.
2 Roccina S. Niehaus Attorney at Law 600 Vine Street Suite 2500 Cincinnati, OH Direct: (513) Fax: (513) Firm: (513)
3 New Terminology TERMS/ACRONYMS Rule: TRID= TILA (Truth in Lending Act) RESPA(Real Estate Settlement Procedures Act) Integrated Disclosure TILA & GFE are now part of the Loan Estimate-3 pages
4 New Terminology Lender is now the Creditor Borrower is now the Consumer HUD-1 is now the Closing Disclosure ( CD ) Closing/Settlement is now Consummation
5 Know Before You Close Six things to know Summary 1) Be able to explain the new Loan Estimate and Closing Disclosure 2) Timing of closings are impacted by disclosure delivery rules 3) Title fees may need to be adjusted at closing and explained 4) Line numbers have been removed and there are now 7 fee areas 5) Consumer will likely receive more than one Closing Disclosure 6) Final settlement/disbursement form for seller and buyer
6 Know Before You Close 1) Be able to explain the new Loan Estimate and Closing Disclosure: After the 2008 financial meltdown, the Dodd Frank Act was passed and Congress established the Consumer Financial Protection Bureau (CFPB). Among its first tasks was the combination of forms provided to borrowers (Consumers) at both the beginning and end of their loan transaction.
7 Know Before You Close Loan Estimate Currently, borrowers receive two separate forms from their lender at the beginning of the transaction: the Good Faith Estimate (GFE), a form required under the Real Estate Settlement Procedures Act (RESPA), and the initial disclosure required under the Truth-in Lending Act (TILA). For loan applications taken on or after October 3, 2015, the creditor will instead use a combined Loan Estimate form that must be provided to borrowers on a timetable similar to the current receipt of the GFE.
8 Know Before You Close Closing Disclosure The combination of forms continues at the end of the transaction as well, with the HUD-1 Settlement Statement and the final TILA forms now combined into a single Closing Disclosure form. This new five-page form is used not only to disclose many terms and provisions of the loan, but also the financial transaction of the closing of the sale.
9 Know Before You Close 2) Timing of a closing will be impacted by closing disclosure delivery/manage EXPECTATIONS: Issues that could delay the closing: Lack of communication among consumer, agent and loan officer Incomplete/missing documents A missing signature or date on a page Changes to the contract that are not initialed Any financial change impacting income or debt status: Large money transfers between accounts Loss of job/income Incurring new debt: Opening new credit cards Making large purchases or other loan transactions
10 Know Before You Close 3) Title fees may need to be adjusted at closing and explained: Both the new Loan Estimate and Closing Disclosure forms require any listing of a settlement service involving title insurance or closing activities to be preceded by the phrase Title. In doing so, a borrower can clearly see all such charges in the same area. However, that is where the clarity ends. Simultaneously-Issued Rate Full, not discounted, loan policy premium Owner s Policy Loan Policy
11 Know Before You Close 4) Line numbers have been removed; now there are seven fee areas: The chronological line numbering on the HUD-1 familiar to most of us is gone. Instead, the fees and charges are placed on the Closing Disclosure in one of seven areas: Origination Charges Services Borrower Did Not Shop For Services Borrower Did Shop For Taxes and Other Government Fees Pre-paids Initial Escrow Payment at Closing Other
12 Know Before You Close 5) Your customer/client will likely receive more than one Closing Disclosure: Since the consumer will receive a Closing Disclosure several days before the closing (and likely a few days before a walk-through on the property), consumers will likely receive a new, adjusted Closing Disclosure at the closing showing any changes that occurred between the initial disclosure and the closing, including adjustments due to timing of the closing, walk-through adjustments and other matters. But changes may not end there and CFPB mandates that changes in financial disclosure numbers (i.e. changes in a recording fee) in any amount must be re-disclosed, even post closing.
13 Know Before You Close 6) Final settlement/disbursement form for seller and buyer: ALTA proposed forms dated May 1, 2015
14 Know Before You Close Do not expect to be able to make last minute changes at the closing because every change has to be approved by the Creditor. To illustrate, if you want to close on November 30, you may want to make sure everything is finalized on November 23. Timing for walk-throughs will be impacted. Possible delays with ultimate creditor, so re-approval may not be quick. Possible difficulties scheduling back to back closings, movers, etc. There is a bona fide financial emergency exception to the 3 business day rule ; it totally must be a serious emergency not losing an interest rate lock, for example, but more like someone will be bankrupt if the deal does not close AND the exception will have to be approved by the creditor.
15 Know Before You Close Communication: It is crucial to promptly notify the creditor of any changes to the transaction so that they are handled when the closing disclosure is delivered to the consumer (this could save three or more days per change.) Title company/attorney selection Since the creditor is incurring additional responsibilities for the closing disclosure, and there are potential fines, be certain that the creditor and settlement agent have an acceptable working arrangement prior to selection of a settlement agent.
16 Know Before You Close Set expectations Attorneys, real estate agent, and consumers must make sure that all transactional decisions are made well before closing. Unknown at this time, if two weeks is sufficient, then no changes. Determine how consumer wants delivery of closing disclosure, since the requirement is that the closing disclosure is delivered three business days prior to closing, additional time will be necessary if consumer does not want electronic disclosures. Determine attorney/real estate agent role in this process. Early homeowners /hazard insurance selection Obtaining early binders from insurance companies can be difficult when the closing date is uncertain. A good relationship with an insurance agent in order to provide accurate quotes at the time of the initial offer will minimize delays in receipt of the policy and closing disclosure preparation
17 A New Era in Closings Applicable Loans/exceptions Final rule applies to most consumer federally insured mortgages, EXCEPT: Home-equity lines of credit Reverse mortgages Mortgages secured by a mobile home or dwelling not attached to land Creditors making 5 or fewer loans per year Commercial purpose loans
18 A New Era in Closings Applicable Loans/exceptions Final rule applies to most consumer mortgages, EXCEPT: Certain no-interest loans secured by subordinate liens made for the purpose of down payment or similar home buyer assistance, property rehab, energy efficiency, or foreclosure avoidance or prevention
19 Enforcement Powers of CFPB (Title X, Subtitle E) Relief Available (Sec 1055) Rescission or reformation of contracts Refund of monies or return of real property Disgorgement or compensation for unjust enrichment Payment of Damages Public notification of violation Limits on activities or functions Civil penalties Up to $5,000/day If reckless, up to $25,000/day If knowingly, up to $1,000,000/day
20 Delivery Requirements Must be received by consumer no later than three business days before consummation Business day includes Saturday, excludes Sundays & legal holidays
21 Delivery Requirements Delivery Method: Hand delivery Courier/express mail Electronic-must comply with E-sign US Postal servic box rule: presumption of receipt three business days after placed in mail
22 Delivery Requirements Delivery Method: Potential Privacy issues: Gramm/Leach/Bliley What about seller side figures? To follow
24 Consummation v. Closing Consummation: the time that a consumer becomes contractually obligated on a credit transaction. (signing of Note.) State contract law controls When is borrower legally obligated to accept the loan?
25 Consummation v. Closing Closing/Settlement: the process of executing legally binding documents regarding a lien on property that is subject to a federally related mortgage loan. Differences in northern/southern Ohio-SW Ohio- table closing, these two dates are likely to be the same.
26 The New Forms Loan Estimate Three pages long Combines early two-page TIL and threepage GFE + new disclosures required by Congress under Dodd/Frank Who provides? Two options: creditor or mortgage broker
27 Loan Estimate The New Forms When? Within three days of loan application Definition of application Still Subject to tolerances No fees charged by creditor until after consumer communicated intent to proceed (exception: credit report)
28 Loan Application to Trigger Loan Estimate Form What is a loan application? If these items are supplied by the consumer, then the creditor has a loan application: Consumer s name Consumer s income Consumer s social security number Property address Estimated value of property Mortgage loan amount sought
29 Loan Estimate Page 1 (replaces GFE and TIL) : Basic Information Loan Terms Projected Payments Costs at Closing Mirrors page 1 of CD
30 Loan Estimate Page 2: Loan Costs Other Costs Calculating Cash to Close Mirrors page 2 of CD
31 Loan Estimate Page 3: Comparisons Other Considerations Confirm Receipt
32 Receiving the Loan Estimate Except for credit report, no fees chargeable until after Loan Estimate is provided/intent to proceed; Loan Estimate is locked for 10 days. Lender must attach separate Provider List similar to that currently used with the GFE Must include all services which the borrower may need for the transaction (not just items for loan)
33 The New Forms Closing Disclosure HUD-1 Replacement Five pages long Combines three-page HUD-1 and final two-page TIL Who provides? Two options: creditor or combination of creditor and settlement agent
34 Closing Disclosure Page 1 (replaces HUD-1): Loan terms and fees paid General Information Closing Information Transaction Information Loan Information Loan Terms Table Projected Payments Table Costs at Closing Closing Costs Cash to Close
35 Closing Disclosure Page 2: Itemization and comparison Loan Costs Itemized Fees/no more bundling Origination Charges Services Borrower Did Not Shop For Services Borrower Did Shop For Other Costs Itemized Fees Taxes & Government Fees Prepaids Escrows Other Costs
36 Closing Disclosure Page 3: Totals Calculating Cash to Close This is the comparison table from the loan estimate form Summaries of Transactions Similar to page 1 of the current HUD-1
37 Closing Disclosure Page 4: TIL/escrow info Loan Disclosures Assumption Demand Partial Payments Security Interest Escrows ARM Info Tables Adjustable Payment Adjustable Interest Rate
38 Closing Disclosure Page 5: Loan Calculations Total of Payments Finance Charge Amount Financed Annual Percentage Rate Total Interest Percentage (TIP) Other Disclosures Appraisal Contract Details Liability After Foreclosure Notice Refinance Notice Tax Deductions Contact Information Confirmation of Receipt
39 The New Forms When? Three business days before consummation Redisclosure : changes in APR, loan product and/or addition of pre-payment penalty All other changes require borrower to receive revised CD at or before consummation
40 Alphabetical Order/Dynamic - Cost descriptions in each section must be listed in alphabetical order Title Insurance and Settlement Charges - The description of each fee related to title insurance or settlement (escrow) must be preceded by Title Lender s Title Insurance Purchase Transactions - Must show the full Loan Policy Rate, NOT the simultaneous issue rate often charged when an Owner s policy is also issued Owner s Title Insurance Rules - If to be paid by borrower, must show (optional) in description - Actual Charge not shown - for simultaneous issue, owner s rate = Owner s Rate + Simultaneous Issue Loan rate Full Loan rate
41 Closing Disclosure to the Seller Settlement Agent is responsible for providing the Closing Disclosure to the Seller Closing Disclosure format for the seller may be either: The same format as for Borrower, but items related solely to borrower (i.e., loan disclosures) excluded, using only seller data; or Use the separate CFPB seller s disclosure form Disclosure must be delivered to the Seller on or before consummation ; no 3-day waiting period Copy to buyer s creditor
42 Closing Table Closing Table will have 4 main document sets: Consumer s Closing Disclosure (updated at or before consummation) Seller s closing disclosure (provided at or before consummation) Final Closing Statement (prepared by Settlement Agent) Borrower s contractual documents
43 Closing Table Why a Final Closing Statement? Because all documents have different purposes, but need to match on the bottom line Final closing statement will show the actual disbursement of funds in the transaction
44 Closing Table Why a Final Closing Statement? It will group charges into the certain categories It can show both buyer and seller amounts or be limited to one side Settlement agents regulatory compliance Additional information not shown on the CD
45 Closing Table Why a Final Closing Statement? Clarification of possibly conflicting information shown on the CD Closing (settlement) date v. Closing (consummation) date Itemization of aggregated fees Special CFPB rules regarding disclosure of certain title insurance premiums
46 Closing Table What is a Final Settlement Statement? A disbursement statement showing the actual distribution of funds in the transaction Charges grouped into certain categories Can show both seller and buyer disbursements or be limited to one side
47 Buyer\Borrower Final Closing Statement Form Page1
48 Buyer\Borrower Final Closing Statement Form Page 2
49 Buyer\Borrower Final Closing Statement Form Page 3
50 Seller Final Closing Statement Form Page 1
51 Buyer\Borrower Final Closing Statement Form Page 2
52 Buyer\Borrower Final Closing Statement Form Page 3
53 All Parties Combined Final Closing Statement Form Page 1
54 Buyer\Borrower Final Closing Statement Form Page 2
55 Buyer\Borrower Final Closing Statement Form Page 3
56 TRID TRIVIA: HOME LOAN TOOL KIT : fpb_your-home-loan-toolkit-web.pdf Questions?