NORTH AMERICAN TITLE COMPANY Like Clockwork www.nat.com/cfpb
UNDERSTANDING THE NEW LOAN ESTIMATE AND CLOSING DISCLOSURE FORMS American Title, we want to make sure all of our customers have the information they need to understand the new Loan Estimate AtNorth and Closing Disclosure, the two new mortgage disclosures that will go into effect in 2015. This brochure will provide a brief overview of the various sections of these two forms. There are many disclosures required to transact a mortgage. These disclosures were created over many years under the auspices of different federal regulators. In 2010, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), which mandated these disclosures be combined and streamlined so it would be easier for consumers to understand the terms of their loan and to shop for the best loan terms. The new forms were created to combine the traditional Good Faith Estimate, Truth in Lending disclosure and the HUD-1 Settlement Statement currently required under the federal Truth in Lending Act (TILA) and Real Estate Settlement Procedures Act (RESPA). The new forms must be used for most closed-end consumer mortgages. However, certain types of loans, such as home equity lines of credit, reverse mortgages, and mortgages secured by a mobile home or by a dwelling that is not attached to real property, must continue to use current disclosure forms required by TILA and RESPA. LOAN ESTIMATE The Loan Estimate is provided to the buyer within three business days of applying for a mortgage loan. It includes the terms of the loan, the projected payments and an estimate of the closings costs. Since the Loan Estimate is uniform from lender to lender, it can be used to compare and shop around for the best mortgage to fit a borrower s situation. CLOSING DISCLOSURE Under the new regulations, the Closing Disclosure must be provided to the borrower at least three business days before he or she becomes contractually obligated for the loan (generally when the final loan documents are signed). Just like the Loan Estimate, the Closing Disclosure lists information about the loan terms, monthly payments and closing costs. These are not estimates, however, but the actual and final terms of the loan. REMEMBER: The Closing Disclosure is designed to work with the Loan Estimate so borrowers can easily compare the two documents and ensure they are getting the terms promised to them. IMPORTANT NOTICE REGARDING LIMITATION ON USE OF INFORMATION The information in this brochure is provided for general educational purposes only and should not be construed or relied upon as legal advice. This information is provided as is without any representations or warranties, express or implied, including, but not limited to, any representation that the information is complete, true, accurate, up-to-date or non-misleading. If you have specific questions about any information provided herein, you should consult your attorney or other professional legal services provider. 2
PAGE 1 LOAN ESTIMATE APPLICANT, PROPERTY AND LOAN INFORMATION Identifies the borrowers, the property address, the sale price (or appraised value or estimated value if the loan is a refinance), the length of the loan and the terms. LOAN TERMS Lists the amount the borrower is proposing to borrow, the interest rate, and the monthly principal and interest. Indicates whether the loan has any special features such as a prepayment penalty or a balloon payment. PROJECTED PAYMENTS Combines the principal and interest, mortgage insurance and estimated escrow to show the estimated monthly payment. Escrow can include taxes, homeowners insurance and other assessments, if any. COSTS AT CLOSING The estimated closing costs and the estimated cash the borrower will need to close, which includes closings costs plus the down payment. (Explained in more detail on page 2.) 3
PAGE 2 LOAN ESTIMATE ORIGINATION CHARGES Fees the lender charges to process, underwrite and fund the loan. SERVICES YOU CANNOT SHOP FOR Fees for services provided by persons other than the lender but required by the lender in order to determine if it will fund the loan. SERVICES YOU CAN SHOP FOR Additional services provided by persons other than the lender and required to finalize the loan, but for which the borrower is permitted to select his or her own service providers. TAXES AND OTHER GOVERNMENT FEES Fees required by the local or state government for the transfer of property or for recording the mortgage in the county records. PREPAIDS Insurance, taxes and other items required to be pre-paid at the time of the closing of the mortgage. INITIAL ESCROW PAYMENT AT CLOSING The lender requires the creation of an escrow account from which to pay various recurring periodic payments, such as mortgage insurance, homeowners insurance and property taxes. This is a listing of initial payments into the escrow. OTHER Additional payments, such as homeowner s association fees associated with transfer of ownership, home warranty fees, real estate commissions and owner s title insurance. CALCULATING CASH TO CLOSE Cash the borrower will need to bring to the closing, including the total closing costs plus the borrower s down payment. It can also include any credits or adjustments. 4
PAGE 3 LOAN ESTIMATE LENDER INFORMATION COMPARISONS OTHER CONSIDERATIONS CONFIRM RECEIPT Contact and licensing information for the lender, loan officer and, if applicable, mortgage broker. This information provides a basis of comparison should the borrower choose to shop further for a loan. This section details particular requirements of the lender and may change from lender to lender. The borrower signs to confirm that he or she has received the Loan Estimate. This is NOT a final loan application and does NOT obligate the borrower to accept the loan. 5
PAGE 1 CLOSING DISCLOSURE CLOSING, TRANSACTION AND LOAN INFORMATION The closing date and location, information about the transaction, and the loan length and terms. LOAN TERMS The amount to be borrowed, the interest rate, and the cost of the monthly principal and interest. Indicates whether the loan has a prepayment penalty or a balloon payment. PROJECTED PAYMENTS The monthly principal and interest payments. This number, combined with the mortgage insurance and monthly escrow payment, equals the estimated total monthly payment. Since escrow requirements can change over time with the increase of property taxes or homeowner s insurance, the escrow portion of the payment can vary from year to year. Not all fees are paid out of escrow. In this example, the homeowner s association fees are not paid out of escrow and are the responsibility of the borrower. COSTS AT CLOSING Total closing costs and the estimated cash the borrower will need to close, which includes closing costs plus the down payment. This is explained in more detail on page 2. 6
PAGE 2 CLOSING DISCLOSURE CLOSING COST DETAILS This page details all of the final closing costs, who is responsible for each fee and what fees have already been paid. ORIGINATION CHARGES Fees the lender charges to process, underwrite and fund the loan. SERVICES BORROWER DID NOT SHOP FOR Fees for services the lender ordered to make an underwriting determination. SERVICES BORROWER DID SHOP FOR Additional services required by the lender but selected by the borrower. TAXES AND OTHER GOVERNMENT FEES Fees required by the local and state government for the transfer of property or for recording the mortgage in the county records. PREPAIDS Fees the borrower is required to pay up front, such as homeowner s insurance, mortgage insurance, pre-paid interest and property taxes. INITIAL ESCROW PAYMENT AT CLOSING The lender requires the creation of an escrow account from which to pay future amounts due for mortgage insurance, homeowners insurance and property taxes. This is a listing of initial payments into the escrow. OTHER Other payments, such as homeowner s association fees, home warranty fees, real estate commissions and owner s title insurance. 7
PAGE 3 CLOSING DISCLOSURE CALCULATING CASH TO CLOSE Cash the borrower will need to bring to the closing, and includes the total closing costs plus the borrower s down payment. It can also include any credits or adjustments. SUMMARIES OF TRANSACTION Summarizes the transaction for both the buyer and the seller. CALCULATION Cash the borrower must bring to the closing, and how much the seller will be paid after all mortgages, judgments, liens and fees due from seller are paid at the closing. 8
PAGE 4 CLOSING DISCLOSURE LOAN DISCLOSURES ESCROW ACCOUNT ESCROW ACCOUNT DETAILS FUTURE CONSIDERATIONS Special features of the loan that are required to be disclosed to the borrower. Explanation of the purpose of an escrow account. Fees required upfront to provide a cushion for the escrow account and the portion of the monthly payment that is put towards escrow. It also lists those fees that are NOT in escrow and will be paid directly by the borrower. Additional information about the escrow account, including what changes may occur in the escrow account in the future and your responsibility to make sure taxes and insurance are paid. 9
PAGE 5 CLOSING DISCLOSURE LOAN CALCULATIONS OTHER DISCLOSURES CONTACT INFORMATION CONFIRM RECEIPT The total cost to the borrower over the life of the loan. Additional general disclosures about the loan. Important contact information for the service providers who assisted in the property purchase (if applicable), as well as processing, funding and closing of the loan. The borrower signs to confirm that he or she has received the Closing Disclosure. This does NOT obligate the borrower to accept the loan. 10
TITLE WHAT IS TITLE INSURANCE? ESCROW Over the years with each new possession of a property, events affecting the title can take place such as a refinancing, a tax lien, an encroachment by a neighbor, or the marriage, divorce or death of an owner. That s the case even when buying a newly built home. When a buyer and seller agree on a home or land purchase transaction, a title professional searches public records to see if any outstanding issues could affect the new buyer s rights. This process, called a title search, provides warnings of title flaws that must be resolved before the property changes hands. At that point, title professionals work to remedy problems that could prevent the new owners from having a clear title. However, the best title search performed by the most experienced and capable experts cannot ensure that no title hazards exist. To help protect the homebuyer, the title professional issues a title insurance policy to insure against most of these unforeseen problems. There are two kinds of title insurance policies. An Owner s Policy assures the title company will be there to help pay valid claims and cover the costs of defending an attack on the homebuyer s title. A homebuyer must request an Owner s Policy, since it isn t always an automatic part of the closing process. In addition, the mortgage lender has a great financial interest in the property. A Loan Policy ensures unforeseen title problems will not negatively impact a lender s rights under the mortgage agreement. In addition, it s important to understand title insurance is different from other kinds of insurance, such as homeowners or auto insurance. The premium paid just once for title insurance buys coverage that lasts the entire time the homebuyers or their heirs own the home. WHAT IS ESCROW? Escrow is the depositing of funds and documents with a neutral third party for delivery upon completion of the terms of the escrow instructions. When the parties deliver documents and money to the Escrow Officer, we say the documents are held in escrow. Each of the principals of the escrow (seller, buyer and lender) provide written instructions setting out the conditions under which further delivery is to be made. The common use of an escrow is to enable the parties in a real estate transaction to deal with each other with less risk, since the escrow holder acts as custodian for funds and documents, as well as the clearing house for payment of all demands. Typically, an escrow begins with the Escrow Officer opening the order for title work. Based on the information provided, North American Title searches all public records relating to the property and prepares either a preliminary report or a commitment, providing the customer with the conditions on which the title insurer will issue a policy. Upon receipt of the preliminary report or commitment, an analysis is made to determine the necessary action and documents required to complete the transaction: demands for satisfaction of liens not acceptable to buyer and/or lender; documents for recording; instructions; and requirements of the new lender. In most areas, buyers and sellers instructions are prepared for signature from the information gathered. When all the title and financial requirements are met, and instructions from all parties can be fully complied with, the escrow is said to be in perfection and can close. Then the financial settlement takes place, the documents are recorded and the title insurance policies are issued. 11
IMPORTANT NOTICE REGARDING LIMITATION ON USE OF INFORMATION The information in this brochure is provided for general educational purposes only and should not be construed or relied upon as legal advice. This information is provided as is without any representations or warranties, express or implied, including, but not limited to, any representation that the information is complete, true, accurate, up-to-date or non-misleading. If you have specific questions about any information provided herein, you should consult your attorney or other professional legal services provider. Contact your professionals at North American Title today! NORTH AMERICAN TITLE COMPANY Like Clockwork www.nat.com/cfpb 2015 North American Title Group and its subsidiaries. All Rights Reserved. North AmericanV Title Group and its subsidiaries are not responsible for any errors or omissions, or for the results obtained from the use of this information. NAT CFPB 15-6461 R 8.16.15