YOUR NEW MORTGAGE DISCLOSURE FORMS - AN IN-DEPTH LOOK FIS REGULATORY ADVISORY SERVICES

Transcription

1 YOUR NEW MORTGAGE DISCLOSURE FORMS - AN IN-DEPTH LOOK BY FIS REGULATORY ADVISORY SERVICES

2 92012 Your New Mortgage Disclosure Forms An In Depth Look i 1 Agenda Introduction What s New Highlights and overview The Loan Estimate The Closing Document Conclusion FIS Regulatory Advisory Services 1

3 What s New? Transactions covered Closed endend Consumer credit Secured by real property Transactions not covered Reverse mortgages Open end credit Transactions secured by a dwelling but not by real estate (mobile homes but not the land the home sits on) Newly covered transactions Construction only loans (not RESPA covered now) Vacant land loans (not RESPA covered now) Loans secured by 25 acres or more (not RESPA covered now) 3 Definitions Who is a Consumer? Certain trusts established for tax or estate planning purposes, not just land trusts What is an Application? No more 7th element catch all that was under RESPA Six (6) elements stay: Name, income, SS# (or other unique identifier), property address, estimated value of property, loan amount request Other information may still be collected prior to obtaining the 6 elements and may be reflected in disclosures The six elements rule does not apply to open end end credit, student loans, special rules for credit card accounts and open end credit offered to college students 4 FIS Regulatory Advisory Services 2

4 Definitions What is a Finance Charge? Payable directly or indirectly by the consumer Imposed directly or indirectly by the creditor as a condition of credit extension Not paid in a comparable cash transaction Excludes Late fees and similar default or delinquency charges Seller s points Escrow accounts Premiums for property and liability insurance with certain conditions New fees Credit life insurance and debt suspension fees Government recording taxes and related fees 5 Disclosures Other Settlement Cost Booklet All loans subject to combined disclosures will also be subject to the booklet requirement of (g) Loans for construction only, vacant land, and loans secured by 25 acres and more of land now get the settlement cost booklet Non standard alternate early disclosures If a creditor provides non standard early estimates of settlement costs that are unique to the borrower as opposed to generic cost estimates of normal settlement charges or ranges of charges, the disclosures must specifically identify that they are NOT the estimates required by (e)(1)(i) 6 FIS Regulatory Advisory Services 3

5 Integrated Mortgage Disclosures Basis of Disclosures and Use of Estimates Loan Estimate within three business days of receiving consumer s application Closing Disclosure at least three business days prior to consummation (a) Only applies to reverse mortgages subject to RESPA Loan Estimate Disclosure (e) Early disclosures for mortgage loans secured by real property Section Loan Estimate form content instructions Replaces GFE and early TIL H 24 series Closing Disclosure (f) Final disclosures for mortgage loans secured by real property Section Closing Disclosure form content instructions To replace HUD 1 and final TIL H 25 series 7 Integrated Mortgage Disclosures Section (b) Amount Financed Revising this section regarding real estate settlement charges, in light of revised df definition of finance charge Section (c) Itemization of Amount Financed Applies only to reverse mortgages and closed end transactions not secured by real property Transactions secured by real property (other than reverse mortgages) now subject to sections and Section (f) Variable Rate All construction loans (including multiple li l advances) would no longer be subject to disclosure requirements, but instead to sections and Section (g) Payment Schedule To apply only to closed end transactions that are unsecured or secured by personal property that is not a dwelling 8 FIS Regulatory Advisory Services 4

6 Integrated Mortgage Disclosures Section (k) Prepayment Prepayment py penalty defined in reference to prepayment p of all or part of the principal balance instead of payment in full Section (r) Required Deposit Remove statement that an escrow of condominium fees is not a required deposit Section (s) Interest Rate and Payment Summary for Mortgage Transactions Governs only closed end reverse mortgages and closed end transactions secured by a dwelling that is personal property Section (s)(3) Payments for Amortizing Loans Mortgage insurance or equivalent must be included in the estimate of the amount of taxes and insurance, payable with each periodic payment Including guarantee fees under government loan programs 9 Mortgage Loan Transfer Disclosure Proposing a few adjustments to section Current key provisions Applies to principal dwelling secured loans and HELOCs on principal dwelling Proposed provisions Apply to closed end loans secured by real estate only Apply to closed end loans secured by any dwelling, not just by principal dwelling Does not apply to reverse mortgages Still applies only to open end credit that is secured by principal dwelling Includes statement of partial payment policy Anticipated result By making coverage broader, makes it easier to determine who gets disclosure Integrating partial payment policy promotes consumer s informed use of credit 10 FIS Regulatory Advisory Services 5

7 The Loan Estimate Mack Rudisill 11 The Loan Estimate Must be provided within three business days after application Consumer s s statement of intent to proceed still required May require within 10 days (longer time is optional) Section.19(e)(2)(i) Subsequent changes intermittent disclosure concept Provide revised Loan Estimate (GFE) within 3 business days of each changed circumstance; Comment 19(e) Rule on comparisons when change is less than 10% very tricky! [p.965] FIS Regulatory Advisory Services 6

8 The Loan Estimate [Filled in model, p. 832 in handout] 37(a)(4) Date issued 37(a)(5) Consumers names must be on form (so they know it s for them) 37(a)(6) Address/description of the property (ditto; get from them) 37(a)(7) The sale price if purchase or est. value if refi (ditto; ditto) 37(a)(8) Loan term to maturity (expressed in years, not months, days) 37(a)(9) Loan purpose: Purchase Refinancing Construction Home equity (a catchall; use if first 3 are all NA) The Loan Estimate (a)(10) Loan product Adjustable rate Step rate Fixed rate Features that may change periodic payment (state only the first one) Negative amortization Interest only Step payment Balloon payment Seasonal payment 14 FIS Regulatory Advisory Services 7

9 The Loan Estimate (a)(11) Loan type Conventional FHA VA Other. 37(a)(12) Loan ID # (a very early stage to have one!) 37(a)(13) Rate lock expiration date Include date and time of expiration Give the time zone, too 15 The Loan Estimate (b) Loan Terms Summary table Yes or no answers In bold 37(b)(1) Loan Amount is principal amount of the transaction 37(b)(2) Interest Rate (fully indexed if based on an index) 37(b)(3) Principal & Interest payment 37(b)(4) Prepayment Penalty Defined, with examples, exceptions Yes or no answer 37(b)(5) Balloon Payment Defined, with examples (broader than current definition) Yes or no answer FIS Regulatory Advisory Services 8

10 The Loan Estimate (b)(6) Increases After Consummation 37(b)(7) Prepayment Penalty and Balloon Payment Details 37(b)(8) Dates required must be disclosed in whole years, not months 37(c) Projected Payments (even for fixed rate, non dwelling RE loans!) 37(c)(1) Periodic Payment/Range events requiring disclosure: Payment may change Scheduled balloon payment Required termination of PMI 37(c)(2) Itemization of Payments/Ranges (including fixed rate) PMI Mortgage Insurance Estimated Escrow Total Monthly Payment 17 The Loan Estimate (c)(3) Subheadings sequence of whole years payment in effect 37(c)(4) Taxes, Insurance, Assessments (disclose even if noescrow) 37(d) Estimated Cash to Close 37(e) Reference to CFPB s website 37(f)(1) Origination Charges (6 other rulemakings will influence!) 37(f)(2) Services You Cannot Shop For (up to 13 lines) 37(f)(3) Services You Can Shop For (up to 14 lines) 37(f)(4) Total Loan Costs 37(f)(5) Item Descriptions and Order (alphabetical, except for points) 37(g)(6) Total Closing Costs = Total Loan Costs + Total Other Costs Tabular format No addenda allowed 18 FIS Regulatory Advisory Services 9

11 The Loan Estimate (h) Calculating Cash to Close Closing costs to be financed Downpayment, etc. from borrower Deposit Funds for borrower Seller credits Adjustments and other credits 37(i) Adjustable Payment ( AP ) Table Interest only t payments? t? Optional payments? Seasonal payments? Monthly P&I Payments (First, Subsequent, Maximum) 19 The Loan Estimate (j) Adjustable Interest Rate ( AIR ) Table Index + Margin Initial Interest Rate Minimum/Maximum Interest Rate Change Frequency (First, Subsequent) Limits on Interest Rate Changes (First, Subsequent) 37(k) Contact Information (Name, , NMLSR ID) 37(l) Comparisons 37(l)(1) In Five Years (replaces Total of Payments) 37(l)(2) APR (How the mighty have fallen!) This is not your interest rate 37(l)(3) Total Interest Percentage ( TIP ) New. Total amount of interest over life of loan as a % of amount of credit extended 20 FIS Regulatory Advisory Services 10

12 The Loan Estimate (m) 37(m)(1) 37(m)(2) 37(m)(3) 37(m)(4) 37(m)(5) 37(m)(6) 37(m)(7) 37(n) Other Considerations Appraisal (omit if open end) end) Assumption Homeowner s Insurance Late Payment Refinance Servicing Liability After Foreclosure (Get counsel to draft. State law!) Signature Statement 21 The Loan Estimate (o) Form of Disclosures Usual conspicuous conspicuous, in writing, consumer may keep Added grouped together, segregated, separate pages Contain only the info required, in same order as form H 24 Rounded to nearest $1 (generally, w/exceptions) Percentages must be exact to 2 or 3 decimal places Lender credits may be omitted if amount is zero Lender may add its logo, attach officer s business card May translate form into a language other than English 22 FIS Regulatory Advisory Services 11

13 The Closing Document Walt Young 23 The Closing Document Only 5 pages! Must provide at least 3 business days before consummation Subsequent changes Allowed after delivery Changes due to seller and consumer negotiations Changes in amount consumer has to pay if no more than $ Changes after consummation where government charges are different than expected Fixes of non numeric numeric clerical errors Changes to reflect cures given for tolerance violations FIS Regulatory Advisory Services 12

14 Page 1 Sales Transaction Version 25 Page 1 Non sales transaction 26 FIS Regulatory Advisory Services 13

15 Page 2 Top Section 27 Page 2 Bottom Sections 28 FIS Regulatory Advisory Services 14

16 Page 3 Calculating Cash to Close 29 Illustration of a tolerance problem Description: This is an example of a completed Closing Disclosure for the refinance transaction illustrated by form H 24(D). The Closing Costs have increased in violation of (e)(3) ()() by $100, for which the creditor has provided a credit. 30 FIS Regulatory Advisory Services 15

17 Page 3 Bottom 31 Page 3 Bottom for Non Sale Loan This isn t illustrated in the blank forms section at all. You must go to the sample loans illustrations to find this table illustrated instead of the table summarizing buyer and seller payments 32 FIS Regulatory Advisory Services 16

18 Page 4 Additional Information About This Loan Assumption Yes or No Demand Feature? Late Payment Standards Negative Amortization? 33 Page 4 Continued Partial Payments Describe lender s standards or lenderpractices for allowing partial payments Security Interest Provide specifics as to collateral taken to secure the loan 34 FIS Regulatory Advisory Services 17

19 Page 4 Continued Escrow disclosures Escrows Yes or No? Check the appropriate box Fill in amounts where indicated Note that the current standards are for now Costs are estimated for the first year even if no escrows are required 35 Page 4 More on Escrows Finally, you give a warning about future escrow costs and requirements 36 FIS Regulatory Advisory Services 18

20 Page 4 Continued Additionalinformation information for Adjustable Payment and/oradjustable Interest rate loans 37 Page 5 Loan Calculations Total of Payments Finance Charge Amount Financed Annual Percentage Rate (APR) Total Interest Percentage (TIP) Approximate Cost of Funds (ACF) Questions? 38 FIS Regulatory Advisory Services 19

21 Page 5 Continued Other Disclosures Appraisals Contract Details Liability after Foreclosure Refinance Tax Deductions 39 Page 5 Contact Information & Receipt 40 FIS Regulatory Advisory Services 20

22 Thank You! 41 Questions? FIS Regulatory Advisory Services 21

23 APPENDIX BY FIS REGULATORY ADVISORY SERVICES

24 832

25 833

26 H-24(D) Mortgage Loan Transaction Loan Estimate Refinance Sample Description: This is an example of a completed Loan Estimate for a transaction that is for a refinance and includes a prepayment penalty equal to 2.00 percent of the principal amount 834

27 prepaid for the first two years after consummation of the transaction. The consumer estimated the balance of the existing loan to be $121,

28 836

29 837

30

31 have not changed from the estimates provided on the Loan Estimate. The creditor requires an escrow account and that the consumer pay for private mortgage insurance for the transaction. 850

32 851

33 852

34 853

35 H-25(C) Mortgage Loan Transaction Closing Disclosure - Sample of Borrower Funds from Second-Lien Loan in Summaries of Transactions 854

36 Description: This is an example of the information required on the Closing Disclosure by (j) for disclosure of consumer funds from a simultaneous second-lien credit transaction not otherwise disclosed pursuant to (j)(2)(iii) or (iv) that is used to finance part of the purchase price of the property subject to the transaction. 855

37 H-25(D) Mortgage Loan Transaction Closing Disclosure - Sample of Borrower Satisfaction of Seller s Second-Lien Loan Outside of Closing in Summaries of Transactions Description: This is an example of the information required on the Closing Disclosure by (j) and (k) for the satisfaction of a junior-lien transaction by the consumer, which was not paid from closing funds. H-25(E) Mortgage Loan Transaction Closing Disclosure - Sample of Refinance Transaction Description: This is an example of a completed Closing Disclosure for the refinance transaction illustrated by form H-24(D). The purpose, loan amount, loan term, interest rate, and 856

38 prepayment penalty have not changed from the estimates provided on the Loan Estimate. The creditor requires an escrow account and that the consumer pay for private mortgage insurance for the transaction. 857

39 858

40 859

41 860

42 861

43 H-25(F) Mortgage Loan Transaction Closing Disclosure - Sample of Refinance Transaction (19(e)(3) violation) Description: This is an example of a completed Closing Disclosure for the refinance transaction illustrated by form H-24(D). The Closing Costs have increased in violation of (e)(3) by $100, for which the creditor has provided a credit. 862

44 863

45 864

46 865

47 866

48 867

49 H-25(G) Mortgage Loan Transaction Closing Disclosure - Sample of Refinance Transaction with Financed Closing Costs Description: This is an example of a completed Closing Disclosure for the refinance transaction illustrated by form H-24(D). The consumer has financed $4,500 of the Closing Costs in the Loan Amount. 868

50 869

51 870

52 871

53 872

54 873

55 H-25(H) Mortgage Loan Transaction Closing Disclosure Modification to Closing Cost Details Description: This is an example of the modification to Closing Cost Details permitted by (t)(5)(v). 874

56 875

57 H-25(I) Mortgage Loan Transaction Closing Disclosure Modification to Closing Disclosure for Disclosure Provided to Seller Description: This is an example of the modification permitted by (t)(5)(vii). 876

58 877

59 H-25(J) Mortgage Loan Transaction Closing Disclosure Modification to Closing Disclosure for Transaction Not Involving Seller Description: This is an example of the modification permitted by (t)(5)(viii). 878

60 879

61 880

62 881

63 882

64 883

65 884

66 885

67 886

68

69 (e)(3)(iii) regardless of the provider selected by the consumer, unless the provider is an affiliate of the creditor in which case good faith is determined pursuant to (e)(3)(i). 3. Good faith requirement for non-required services chosen by the consumer. Differences between the amounts of estimated charges for services not required by the creditor disclosed pursuant to (e)(1)(i) and the amounts of such charges paid by or imposed on the consumer do not necessarily constitute a lack of good faith. For example, if the consumer informs the creditor that the consumer will obtain a type of inspection not required by the creditor, the creditor may include the charge for that item in the disclosures provided pursuant to (e)(1)(i), but the actual amount of the inspection fee need not be compared to the original estimate for the inspection fee to perform the good faith analysis required by (e)(3)(iii). However, the original estimated charge, or lack of an estimated charge for a particular service, must still be made based on the best information reasonably available to the creditor at the time that the estimate was provided. For example, if the subject property is located in a jurisdiction where consumers are customarily represented at closing by their own attorney, but the creditor fails to include a fee for the consumer s attorney, or includes an unreasonably low estimate for such fee, on the original estimates provided pursuant to (e)(1)(i), then the creditor s failure to disclose, or under-estimation, does not comply with (e)(3)(iii). 19(e)(3)(iv) Revised estimates. 1. Requirement. Pursuant to (e)(3)(i) and (ii), good faith is determined by calculating the difference between the estimated charges originally provided pursuant to (e)(1)(i) and the actual charges paid by the consumer. Section (e)(3)(iv) provides the exception to this rule. Pursuant to (e)(3)(iv), a charge paid by or imposed 962

70 on the consumer may exceed the originally estimated charge if the revision is due to one of the reasons specified in (e)(3)(iv)(A) through (F). 2. Actual increase. The revised disclosures may reflect increased charges only to the extent that the reason for revision, as identified in (e)(3)(iv)(A) through (F), actually increased the particular charge. For example, if a consumer requests a rate lock extension, then the revised disclosures may reflect a new rate lock extension fee, but the fee may be no more than the rate lock extension fee charged by the creditor in its usual course of business, and other charges unrelated to the rate lock extension may not change. 3. Documentation requirement. In order to comply with , creditors must retain records demonstrating compliance with the requirements of (e). For example, if revised disclosures are provided because of a changed circumstance under (e)(3)(iv)(A) affecting settlement costs, the creditor must be able to show compliance with (e) by documenting the original estimate of the cost at issue, explaining the reason for revision and how it affected settlement costs, showing that the corrected disclosure increased the estimate only to the extent that the reason for revision actually increased the cost, and showing that the timing requirements of (e)(4) were satisfied. However, the documentation requirement does not require separate corrected disclosures for each change. A creditor may provide corrected disclosures reflecting multiple changed circumstances, provided that the creditor s documentation demonstrates that each correction complies with the requirements of (e). 19(e)(3)(iv)(A) Changed circumstance affecting settlement charges. 1. Requirement. Except for the items identified in (e)(3) (iii), revised charges are compared to actual charges if the revision was caused by a changed circumstance. See also 963

71 comment 19(e)(3)(iv)(A)-2 regarding the definition of a changed circumstance. The following examples illustrate the application of this provision: i. Assume a creditor provides a $200 estimated appraisal fee pursuant to (e)(1)(i), which will be paid to an affiliated appraiser and therefore may not increase for purposes of determining good faith under (e)(3)(i), except as provided in (e)(3)(iv). The estimate was based on information provided by the consumer at application, which included information indicating that the subject property was a single-family dwelling. Upon arrival at the subject property, the appraiser discovers that the property is actually a single-family dwelling located on a farm. A different schedule of appraisal fees applies to residences located on farms. A changed circumstance has occurred (i.e., information provided by the consumer is found to be inaccurate after the disclosures required under (e)(1)(i) were provided), which caused an increase in the cost of the appraisal. Therefore, if the creditor issues revised disclosures with the corrected appraisal fee, the actual appraisal fee of $400 paid at the real estate closing by the consumer will be compared to the revised appraisal fee of $400 to determine if the actual fee has increased above the estimated fee. However, if the creditor failed to provide revised disclosures, then the actual appraisal fee of $400 must be compared to the originally disclosed estimated appraisal fee of $200. ii. Assume a creditor provides a $400 estimate of title fees, which are included in the category of fees which may not increase by more than ten percent for the purposes of determining good faith under (e)(3)(ii), except as provided in (e)(3)(iv). An unreleased lien is discovered and the title company must perform additional work to release the lien. However, the additional costs amount to only a five percent increase over the sum of all fees included in the category of fees which may not increase by more than ten percent. A 964

72 changed circumstance has occurred (i.e., new information), but costs have not increased by more than ten percent. Therefore, if the creditor issues revised disclosures, when the disclosures required by (f)(1)(i) are delivered, the actual title fees of $500 may not be compared to the revised title fees of $500; they must be compared to the originally estimated title fees of $ Changed circumstance. A changed circumstance may be an extraordinary event beyond the control of any interested party. For example, a war or a natural disaster would be an extraordinary event beyond the control of an interested party. A changed circumstance may also be an unexpected event specific to the consumer or the transaction. For example, if the creditor provided an estimate of title insurance on the disclosures required under (e)(1)(i), but the title insurer goes out of business during underwriting, then this unexpected event specific to the transaction is a changed circumstance. A changed circumstance may also be information specific to the consumer or transaction that the creditor relied upon when providing the disclosures required under (e)(1)(i) and that was inaccurate or changed after the disclosures were provided. For example, if the creditor relied on the consumer s income when providing the disclosures required under (e)(1)(i), and the consumer represented to the creditor that the consumer had an annual income of $90,000, but underwriting determines that the consumer s annual income is only $80,000, then this inaccuracy in information relied upon is a changed circumstance. Or, assume two co-applicants applied for a mortgage loan. One applicant s income was $30,000, while the other applicant s income was $50,000. If the creditor relied on the combined income of $80,000 when providing the disclosures required under (e)(1)(i), but the applicant earning $30,000 becomes unemployed during underwriting, thereby reducing the combined income to $50,000, then this change in information relied upon is 965

73 a changed circumstance. A changed circumstance may also be the discovery of new information specific to the consumer or transaction that the creditor did not rely on when providing the original disclosures. For example, if the creditor relied upon the value of the property in providing the disclosures required under (e)(1)(i), but during underwriting a neighbor of the seller, upon learning of the impending sale of the property, files a claim contesting the boundary of the property to be sold, then this new information specific to the transaction is a changed circumstance. 3. Six pieces of information presumed collected, but not required. Section (e)(1)(iii) requires creditors to deliver the disclosures not later than the third business day after the creditor receives the consumer s application, which (a)(3)(ii) defines as six pieces of information. A creditor is not required to collect the consumer s name, monthly income, or social security number to obtain a credit report, the property address, an estimate of the value of the property, or the mortgage loan amount sought. However, for purposes of determining whether an estimate is provided in good faith under (e)(1)(i), a creditor is presumed to have collected these six pieces of information. For example, if a creditor provides the disclosures required by (e)(1)(i) prior to receiving the property address from the consumer, the creditor cannot subsequently claim that the receipt of the property address is a changed circumstance pursuant to (e)(3)(iv)(A) or (B). 19(e)(3)(iv)(B) Changed circumstance affecting eligibility. 1. Requirement. If changed circumstances cause a change in the consumer s eligibility for specific loan terms disclosed pursuant to (e)(1)(i) and revised disclosures are provided reflecting such change, the final amounts paid by the consumer may be compared to the revised estimated disclosures to determine if the actual fee has increased above the estimated fee. 966