Agenda This training manual consists of three parts that will provide you with step-bystep instructions about how to complete the Closing Disclosure form required by the Integrated Disclosures Rule Upon completion you will be able to: Understand the relationship between the Loan Estimate and the Closing Disclosure Utilize the proper format of the required information on each page of the form Explain the different categories and proper locations for disclosing actual settlement charges List the various other disclosures that are incorporated into the Closing Disclosure 2 5/28/2015
Closing Disclosure This five-page disclosure itemizes actual settlement charges and compares these costs to those estimated on the Loan Estimate. The model form must be used for covered transactions. 3 5/28/2015
Delivery and Timing The Closing Disclosure must be provided for closed-end consumer credit transactions secured by real property. A consumer credit transaction is one that is primarily for personal, family or household purposes. The form must also be used on construction loans and loans securing vacant land or 25 acres or more. The TILA-RESPA Integrated Disclosures rule requires that borrowers receive the Closing Disclosure at least three business days prior to consummation. 4 5/28/2015
Loan Consummation Consummation may commonly occur at the same time as closing or settlement, but it is a legally distinct event. Consummation occurs when the consumer becomes contractually obligated to the creditor on the loan. All timing requirements for delivery of the Closing Disclosure are measured from the loan consummation date rather than the more commonly used term, loan closing date. 5 5/28/2015
Who Must Receive the CD If there is more than one borrower on the loan, the Closing Disclosure need only be provided to the borrower with primary liability (although lenders may decide to have all borrowers sign). However, if the loan is a rescindable transaction, all borrowers as well as any title holder must be provided with their own copy of the Closing Disclosure. 6 5/28/2015
Closing Disclosure Page One Page One of the Closing Disclosure includes information about the loan, its terms and features, projected payments and a summary of the cash required for closing. 7 5/28/2015
General Information Most of the fields are straight forward and have the same rules as the Loan Estimate. Date Issued The date issued is the date that the Closing Disclosure is delivered or mailed to the borrower. Closing Date Show the date of loan consummation. 8 5/28/2015
Three ID Numbers Are Shown File #: This is the identification number assigned to the transaction by the settlement agent. Loan ID #: This must be the same ID number as was shown on the Loan Estimate. MIC # (Mortgage Insurance Case Number) If the loan has mortgage insurance, show the policy number. 9 5/28/2015
Loan Terms This section gives the borrower information about the terms of the loan. It will be the same information as disclosed on the Loan Estimate, although updated to reflect the correct terms at loan consummation. 10 5/28/2015
Fixed Rate Example The image shows an example of how to complete the Interest Rate and Monthly Principal & Interest sections for a fixed rate mortgage. Show the loan amount, interest rate and principal and interest payment. 11 5/28/2015
5Yr. IO 5/3 ARM Example If the interest rate can increase after consummation, indicate "Yes" in the Interest Rate section and disclose the: Frequency of rate adjustments Date of first adjustment Maximum interest rate and the first date when it will be reached 12 5/28/2015
Principal and Interest Principal and Interest Section If the P&I payment can increase after closing, indicate "Yes" and disclose the following: Frequency of adjustments Due date of the first adjustment Maximum possible amount, and the earliest date when it can occur Disclose any interest-only period and the date of its last payment. The example below is for an interest only 13 5/28/2015
Prepayment Penalty If the loan has a prepayment penalty, indicate Yes Show the maximum amount that may be imposed and the termination date of the prepayment penalty. 14 5/28/2015
Balloon Loan This image gives an example of the Loan Terms section completed for a loan with a balloon payment. A balloon payment is considered to be one that is two times the amount of a regular payment. Indicate "Yes" if the loan has a balloon payment; show the maximum amount of the balloon payment and its due date. 15 5/28/2015
Projected Monthly Payments This section show a breakdown of the monthly principal and interest, mortgage insurance and escrowed items. If there is no escrow to be set up for the loan, the amount in "Estimated Escrow" should show as zero. The numbers in this section should not be rounded. 16 5/28/2015
Multiple Payment or Term Changes Up to four columns may be added to accommodate changes to the payment, such as ARM adjustments, a balloon payment or the end of a negative amortization or interest only period. If there are more than four events that cause a payment change, show a range of payments in the fourth column. 17 5/28/2015
PMI Termination The projected effect on the monthly payment resulting from automatic termination of mortgage insurance (MI) must be disclosed in the Projected Payments table. Automatic termination of MI should be reflected in its own column only if there are not more than three columns used for other reasons. If there are more than three other events that change the payment, MI automatic cancellation should be blended with one of the other changes. 18 5/28/2015
Tax and Insurance Estimates Disclose the total monthly amount estimated for property taxes, homeowners insurance, HOA dues, ground rent, leasehold payments and any insurance required by the lender. The total of these amounts is disclosed whether or not an escrow account will be established. Indicate "YES", "NO" or "SOME" to indicate if the items will be escrowed. The amount of estimated escrow payments may differ from the Loan Estimate in that the aggregate escrow analysis has been performed. 19 5/28/2015
Costs At Closing This is the borrower's Total Closing Costs brought forward from Page Two of the Closing Disclosure. It also shows the total "Loan Costs", "Other Costs" and lender credits from Page Two. This is the Cash to Close amount in the "Final" column brought forward from the top of Page Three of the Closing Disclosure. An alternative table can be used for loans without a seller, such as a refinance. It is identical to the purchase version but includes boxes to check closing costs "To Borrower" or "From Borrower". 20 5/28/2015
Closing Disclosure Page One Summary Page One of the Closing Disclosure is very similar in style and content to Page One of the Loan Estimate. It provides detailed information about a loan's terms, the borrower's monthly payment, the interest rate, and property taxes and insurance. It also provides a summary of the amount needed for closing. The primary difference is that the Closing Disclosure reflects final, actual figures whereas the Loan Estimate shows the lender's good faith estimate of this information. 21 5/28/2015
Closing Disclosure Page Two In this section we will help you understand how to complete the second and third pages of the Closing Disclosure, required by the Integrated Disclosures Rule. Upon completion you will be able to: Identify the different primary and subsections of these two pages Describe the settlement charges and summaries that must be disclosed in each section Understand how to disclose the total amounts due to or payable by the borrower and seller Compare charges from the Loan Estimate to the Closing Disclosure 22 5/28/2015
Closing Disclosure Page Two Page Two of the Closing Disclosure is separated into two primary segments and totals. Settlement charges are itemized as borrowerpaid, seller-paid or paid by others. Charges paid by the lender are designated with an "(L)" preceding the amount. 23 5/28/2015
Itemization of Charges The label for each settlement charge, the name of the provider and the charge amount must all be itemized on the form using the same name and in the same location on the form as shown on the Loan Estimate. Closing costs that are not paid from closing funds (those collected and disbursed at closing) should be labeled "P.O.C." and include the name of the party making the payment. These amounts are not included in the totals. 24 5/28/2015
Loan Costs The first of the two primary sections, the Loan Costs Section, is divided into three categories of charges that are totaled: o Origination Charges o Services Borrower Did Not Shop For o Services Borrower Did Shop For 25 5/28/2015
Origination Charges Origination charges include those paid to each creditor or broker for originating the loan. Origination charges can include origination fees, underwriting fees, processing fees and similar charges Discount points paid to the creditor to reduce the interest rate, itemized separately as both a percentage and as a dollar amount (must be shown on the first line of the section). If no points are paid, show zero, but the language shown on the sample form should not be removed. Percentages that are not whole numbers should be shown with either two or three decimal places Loan-level pricing adjustments (LLPAs) that are not built in the interest rate are included in this section 26 5/28/2015
Compensation Compensation paid to a loan originator (broker) o Compensation to a broker paid by the borrower is listed in the "Borrower-Paid" column o Compensation to a broker paid by the creditor is listed in the "Paid by Others" column o As a reminder, compensation paid to a broker by both the borrower and the creditor is prohibited under Regulation Z/ TILA These charges may not increase from the amount shown on the Loan Estimate 27 5/28/2015
Services Borrower Did Not Shop For Charges disclosed in this section are: Those provided by third party providers selected by the creditor or broker, or Those where the borrower chooses a provider from the creditor's written list Examples of these charges: Appraisal, credit report fee, flood determination fee, title insurance fees, upfront mortgage insurance or VA/USDA funding fee. These settlement service charges may not increase from the amount disclosed on the Loan Estimate. 28 5/28/2015
Services The Borrower Did Shop For Charges disclosed in this section include: Charges for services not provided by the creditor or broker for which the borrower was allowed to shop, and The borrower chose a provider that was not on the creditor's written list o Example of charges in this section include: Pest inspection fee, survey fee, title insurance fees. The total amount of these charges in this category may increase but the increase may be limited depending upon the circumstances. 29 5/28/2015
Title Insurance Fees The regulations require that any fees associated with issuing title insurance must be labeled with "Title " preceding the fee label, such as "Title Lenders Title Policy". Owner's title insurance is considered optional and must be shown as "Title Owners Title Policy (optional)". 30 5/28/2015
Simultaneous Policies A lender's title insurance premium may not be shown with any credit for simultaneous purchase of an owner's policy; the full premium must be shown. Instead, the calculation of the owner's policy premium will factor the credit. Title Lenders Title Policy Title Owners Title Policy(optional) Simultaneous Policy Calculation Lender's Policy Full Premium $608.00 Less, Simultaneous Lender's Policy Premium - 462.00 Difference $146.00 Owner's Policy Premium $854.00 Less, Difference in Lender's Premium - 146.00 "Title Owners Title Policy (optional)" $708.00 31 5/28/2015
Other Costs The settlement charges that are shown in the "Other Costs" section include: Recording and other government fees Prepaid amounts for insurance required by the lender Property taxes and escrow account impounds Other charges that were not lenderrequired, such as real estate commissions or a home warranty fee. 32 5/28/2015
Transfer Tax Transfer taxes are included in the "zero increase" tolerance category if they are paid by the borrower. In order to determine if transfer taxes are paid by the borrower or the seller, State law must be considered. o If State law allows a lien to attach to the property if a charge is not paid, transfer taxes should be shown as borrower-paid. o If State law is unclear or is silent about whether the borrower or seller pays transfer taxes, common practice in the property's area will apply. 33 5/28/2015
Pre Paid Expenses Included in this section are those charges that are paid in advance of the first payment, including: Premiums for homeowners and flood insurance Mortgage insurance premiums Prepaid interest (show a per diem and dates collected; show "0" if no amount is collected) Property taxes due within 60 days of consummation or past-due property taxes The aggregate escrow adjustment required by RESPA should be disclosed as the last item in the group. 34 5/28/2015
Other Fees Included in this section should be any fees or charges that are not required by the creditor but are required or obtained in connection with the closing by the borrower, seller or other party such as: Credit life insurance (include "optional") Warranties (include "optional") Real estate commissions (show the total amount regardless of any earnest money on deposit) Homeowners association-related ownership transfer charges The purchase of personal property from the seller Owners title insurance (include "optional") 35 5/28/2015
Total Closing Costs The total closing costs are shown at the bottom of Page Two, net of any lender credits. Subtotals of the amount to be paid at closing and prior to closing are listed for both the borrower and the seller. A lender credit that reduces or covers a settlement charge should be reflected on that charge's line as "Paid by Others", with "(L)" to designate it was paid by the lender. A general lender credit (such as a promotional rebate or credit) that is not attributed to a settlement charge or to offset an excess charge is reflected in Section J, on the last line. 36 5/28/2015
Closing Disclosure Page Three/Purchase Page Three of the Closing Disclosure calculates the total cash required for closing and summarizes the totals of the itemized charges to the borrower and the seller (if any). There are two versions. This view is for purchase transactions. 37 5/28/2015
Closing Disclosure Page Three/Refinance An alternative Page Three is used for transactions without a seller, such a refinances. It provides space to list amounts that are to be paid off with the proceeds of the refinance. 38 5/28/2015
Calculating Cash To Close There are two variations of the "Calculating Cash to Close" section of Page 3 depending upon the type of transaction, but each compares the charges shown on the most recent Loan Estimate with the actual charges on the Closing Disclosure 39 5/28/2015
Note Any Changes A note must be made in the third column of the table if the amounts have changed (unless the change is due to rounding). It must be shown more prominently than the figures in the table, and refer the borrower to the sections of the Loan Estimate and Closing Disclosure where the change can be found. 40 5/28/2015
Comparison This line compares the total closing costs from Item J on Page Two of the Loan Estimate to Item J on Page Two of the Closing Disclosure. If closing costs are financed in the mortgage (such as a refinance), they are shown as a negative number. If an increase in charges exceeds the applicable tolerances, disclose a statement explaining that the charges exceed legal limits. Direct the borrower to the Lender Credit section at the bottom of Page Two. The Lender Credit section should then show that the excess is being refunded. 41 5/28/2015
Costs Paid Outside of Closing (P.O.C.) Because these costs are not shown on the Loan Estimate, the first column will always reflect zero. If there is an amount that has been paid prior to closing this is shown in the "Final" column as a negative number. 42 5/28/2015
Closing Costs Financed - Purchase For purchase transactions, indicate any closing costs that are included in the loan amount as a negative number in both the Loan Estimate and Final columns 43 5/28/2015
Purchase Table Amounts Charges and credits for down payment, earnest money or other deposits, seller credits and other adjustments are shown in the table. Seller credits for items other than closing costs and pre-paids, are shown as other adjustments. 44 5/28/2015
Cash To Close Comparison The regulations require that the total cash to close on the Loan Estimate is rounded to the nearest whole dollar amount. This number is reflected in the cash to close section of the Closing Disclosure and compared to the final cash to close amount which is not rounded. Because this may result in a difference between the two amounts in their comparison, the regulation's commentary (Comment 1026.38(e)-3) explains that although the rounded Final Estimate number should be shown, the un-rounded Loan Estimate total should be used in measuring the difference between the two numbers. 45 5/28/2015
Itemization Worksheet Needed Note: Creditors will notice that the comparison of cash to close is made in total and is not broken down into the different tolerance levels. In order to ensure that settlement charges do not exceed the different limits for increases to settlement charges, creditors will need to make these calculations on a separate form and retain them for their records. The Rule did not provide a specific format for making these calculations. 46 5/28/2015
Summaries of Transaction May have separate forms for borrower and seller 47 5/28/2015
Due From Borrower This includes: The purchase price of the property Any personal property that may be included in the transaction Borrower's closing costs and pre-paids from Page 2 (borrower side only) Payoffs of the borrower's existing liens on the property (refinance, borrower side only) Outstanding property taxes (refinance, borrower side only) 48 5/28/2015
Paid Already or on Behalf of Borrower Section L (borrower side), shows the earnest money deposit with the seller, the loan amount or an assumption amount, and any second liens used to finance the transaction. Second liens that are not paid with closing funds are shown as "POC". Seller credits for items not included in the closing costs (such as for an inspection item) will be shown separately from seller-paid closing costs, which are shown on the seller's side. 49 5/28/2015
Closing Disclosure - Page Four Complete the loan disclosures in the left hand column as appropriate for the loan program. 50 5/28/2015
Escrow Account Disclosure If there is no escrow account, also check the box that indicates if the borrower declined it or if the lender does not offer an escrow account and the borrower must pay taxes and homeowner's insurance when due. The tables in this section indicate the following information: The amount the borrower will be required to pay into an escrow account over the first year Non-escrowed property costs of which the creditor is aware The amount collected as prepaid escrows at the closing (without the aggregate accounting amount) The monthly escrow payment amount If there is no escrow account established, the amount the borrower will be required to pay for property costs directly (that are known by the creditor), and disclosure of any escrow waiver fee 51 5/28/2015
In The Future This section advises that property costs may change in the future, resulting in a change in the escrow payment. It also explains that the borrower may be able to cancel the escrow account in the future but would then need to pay the charges directly. It also explains the consequences of failure to pay property costs. 52 5/28/2015
AP and AIR Tables These tables should appear when the loan terms include an adjustable payment and/or interest rate. The Adjustable Interest Rate table is completed for any loan where interest rate changes are expected, such as ARMs. 53 5/28/2015
Closing Disclosure Page Five There are important disclosures on page five along with the traditional TILA information and contact information 54 5/28/2015
Loan Calculations Total of payments: The Total of Payments figure indicates the total amount the borrower will have paid including principal, interest, finance charges and mortgage insurance (if applicable) if the borrower makes the minimum required payments for the entire term of the loan. The Finance Charge is the dollar amount the credit will cost the borrower. It is the total amount of interest calculated over the life of the loan, plus finance charges and total mortgage insurance premiums (if applicable) charged over the life of the loan. 55 5/28/2015
Amount Financed and APR The Amount Financed is calculated as the mortgage amount, minus prepaid finance charges. These include certain fees such as an origination fee, points, adjusted interest and an initial mortgage insurance premium. The Amount Financed represents a net figure to allow the borrower to accurately assess the amount of credit actually provided. The Annual Percentage Rate is the borrower's costs over the loan term represented by a percentage. 56 5/28/2015
Total Interest Percentage This calculation is the total amount of interest that the borrower will pay over the loan term, as a percentage of the loan amount. To determine the TIP, divide the interest paid over the loan term by the loan amount. 57 5/28/2015
Other Disclosures Page Five The LE and CD provide the only required appraisal disclosures. Be sure to check state law related to unpaid principal balances after foreclosure. Also, informs borrowers that all interest expense may not be tax deductible. 58 5/28/2015
Contact Information Completion of this section is required. Legal names must be shown along with all valid IDs. 59 5/28/2015
Signature Lines A signature line is preceded by a statement that the borrower is only confirming receipt of the form and that there is no obligation to accept the loan because the form is signed. 60 5/28/2015
HUD/VA Addendum Additional pages will be required to accommodate specific product requirements such as the HUD/VA addendum. 61 5/28/2015
Summary Congratulations! You should now be able to: Understand the relationship between the Loan Estimate and the Closing Disclosure Utilize the proper format of the required information on each page of the form Explain the different categories and proper locations for disclosing actual settlement charges List the various other disclosures that are incorporated into the Closing Disclosure 62 5/28/2015