CFPB moves TRID date to Oct. 3


The date has, since this article was written, been changed to October 3rd.

“Some in the industry, however, are skeptical that all of this has happened due to a simple administrative error. The CFPB made its “administrative error” announcement on the same day that Ellie Mae, whose mortgage management software is used by a large majority of the nation’s small and midsized banks, released an update incorporating TRID support in its Encompass software. That left less than two months for Ellie Mae users to deploy and test the updated software. At the same time, some sources told Inman that other software used by some of the top mortgage lenders and settlement agents in the country “blew up” last week.

“Someone at the CFPB didn’t drop the ball in making this ‘administrative error,’” said Marx Sterbcow, managing attorney of the Sterbcow Law Group LLC in New Orleans, and a nationally recognized RESPA attorney.

“Instead, they clearly knew the consequences for pulling the ‘administrative error’ card at this point, and that’s because they received firm and concrete information that several loan origination systems (LOSs) would not be ready by the Aug. 1 deadline. They were so vocal about not delaying this rule that any move contrary to their public position would seemingly undermine their credibility for future regulatory implementations.” The CFPB seemed to acknowledge those concerns by saying, “The bureau has learned that delays in the delivery of system updates have left creditors and others with limited time to fully test all of their systems and system components to ensure that each system works with the others in an effective manner.” “The CFPB clearly received enough credible information from the industry that many LOS systems wouldn’t be ready by Aug. 1, and if the rule stayed in place, there would many communities across rural America where consumers might not be able to attain a mortgage because their local lending institution was out of the residential mortgage lending business due to software glitch issues,” Sterbcow said. “For a rule that has been this controversial and the consistent message of ‘no delay,’ the bureau found a way to keep their credibility while at the same time preserving the mortgage industry until this software and integration issue is worked out. There are LOS systems that are ready, though.” One company that says it its LOS is ready is Calyx. Joan England, senior director of sales and marketing for the mortgage origination software provider, told Inman that the company released an update to its Point system on May 30 to a select group comprising about 20 percent of its clients. “We knew there would be adjustments and tweaking, because there is no way you can test for every single thing, especially since this is a brand-new process,” England said. “We know we have updates to do, and we have that in our schedule.” CFPB moves TRID date to Oct. 1, 2015.”

http://www.housingwire.com/articles/34226-cfpb-moves-trid-effective-date-to-oct-1

New Deal Now!


CHANGING THE WAY WE NOW DO BUSINESS IN THE PURCHASE AND SALE OF  CONSUMER RESIDENTIAL REAL ESTATE

NEW RULES~CFPB EFFECTIVE 3 OCTOBER, 2015 

NEW Loan Estimate | Closing Disclosure

Newly Revised AAR Contract Forms coming soon

The new TILA-RESPA Integrated Disclosure rule (known more commonly as TRID) was scheduled to take effect 1 August, 2015, and now postponed by CFBP TILL 3 OCTOBER, 2015

Why did CFPB delay TRID — and how are loan origination systems preparing?

Earlier this month, the CFPB pushed back the implementation date from Aug. 1 to Oct. 3, claiming that an “administrative error” was responsible for the delay. More here

What does this mean to Lenders, Buyers, Sellers, Realtors, and Service Providers to the Sale and Purchase of Consumer Real Estate?

Well, let’s cut to the chase–The new TRID rules for “Consumer” loan transactions  will become effective for everyone, 3 October, 2015, from the latest information given.

The New Loan Estimate and Closing Disclosure will be prepared by the borrower’s lender. (There might be a few exceptions but most all lenders will want to prepare the Closing Disclosure because there are strict penalties for any mistakes that affect them.)

In addition, Title and Escrow companies will have separate settlement statements, that are prepared for the seller, for these transactions.  Title companies will need to have all the necessary costs for the escrow earlier than previously required, and will need to work closely with the lenders to obtain these escrow closing costs, for the Closing Disclosure, prior to that document being delivered to escrow.

All the inspections and bills, associated with the closing, will need to be turned in at least 2 weeks prior to the close of escrow (not currently a practice) such as:

  • Septic Certifications
  • Seller negotiated items, resulting from inspections, to be resolved
  • Surveys
  • Etc.

Once the loan disclosure is issued, further negotiations which would change the loan amount and affect the APR more than 1/8 percent, would TRIGGER the Loan Estimate and or the Closing Disclosure to be revised. In this case, the required timeline would restart for the borrower and may precipitate the Close of Escrow needing to be extended.

With the new rules on “Consumer” transactions, Septic Certifications, surveys, Insurance Binders, and all other bills paid out of escrow should be turned in to the title company no later than 2 weeks prior to the closing date.

Because of the time lines that must occur with the new rules – it would be wise to have the close of escrow allow for 2 weeks grace period in which escrow closes on a specific date, but no later than a final date.  This grace period will allow for unforeseen circumstances which may occur, allowing for your transaction to still close on time.  With an active market – this may be a vital element to include with the initial offer and acceptance.  If it is not done, an extension could be negotiated by addendum, when needed, if all parties agree.

If the loan program should change because the borrowers do not qualify for the one they applied for, in underwriting the loan disclosure would need to be rectified with the time line changed accordingly.  Working with a lender that qualifies a borrower/buyer and gather all the documentation necessary is vital for a smooth clean transaction without surprises.

The new forms are easier to read and also spell out the cost of the loan to the borrower.  These costs are mandatory to be accurate to the closing of the transaction.   There is an adjustment of 1/8 percent allowed, on the APR, before triggering the closing disclosure to be reworked and resubmitted to the borrower which would cause a longer waiting time to signing the loan documents (the Note) and closing the escrow.

Violations by lenders, of not disclosing properly and following the guidelines set forth, are severe if investigated by the CFBP– recension of the loan and pay back of the funds. That’s huge indeed.

These laws are set forth for the following reasons;
  • Know before you owe/be an informed consumer/borrower
  • Easier to use mortgage disclosure forms
  • Improve consumer understanding and risks
  • Aid comparison shopping
  • Prevent surprises at the closing table
  • Eliminate predatory loan terms
  • Require industries to collaborate
  • Allow consumer/borrower time to understand the agreed upon loan terms
  • Promote financial stability
CFBP was established by the Dodd Frank Wall Street Reform and Consumer Protection Act of 2010

In addition~  There will also benefit for the investor who gave the loan to the consumer because the consumer will be fully disclosed and there will be clear concise information on each loan stored on a platform application. It will be an open book for the CFBP and the Federal Reserve Bank who fund the loans for the most part. Every party to the transaction will be clearly available in this huge data base, being put into place, in which every lender will use in the process of qualifying the buyer and closing the loan.

What Transactions apply?
  • Consumer Residential Loans – 1-4 Units
  • Purchase Money
  • Refinance
  • Less than 25 Acres
  • Vacant Land
  • Construction only
  • Timeshare

VA, FHA, Conventional, USDA, & JUMBO loans. Portfolio loans the bank keeps and does not sell to the secondary market.

LOANS THAT DO NOT APPLY~
  • Commercial Loans
  • Land loans 25 acres or more
  • Reverse mortgage loans
  • HELOC Home Equity lines of credit
  • Chattel-Dwelling/Mobile Home only loans

Creditors who originate less than 5 loans in a calendar year. 

WHEN WILL THIS START TO APPLY WITH CONSUMER TRANSACTIONS?

If you have already applied for a loan with your lender and they have accepted your loan, with a specific address defined, prior to 3 October, 2015, then that transaction will close under the current rules with a HUD 1.  Any loan application that has been accepted with a property address on 3 October 2015, or thereafter will need to be under the new rules and the new revised purchase contracts and associated documents. (SAMPLE CONTRACTS HERE.)

DEFINITIONS OF THE NEW RULES AND TIME LINES (TRID)
Loan Application:

Submission of a consumer’s financial information for purposes of obtaining an extension of credit that consists of the following:

  • Consumer’s Name
  • Social Security number
  • Property address
  • Estimate of the value of the property
  • Mortgage amount sought

All of the above must be submitted to the lender before starting a loan application and the lender must be provided approval to proceed from the borrower, which is the “INTENT TO PROCEED”;  this may be verbal, or in writing, to the lender.

Within (3) three days of a Loan Application the lender must provide a Loan Estimate to the borrower, as defined below:

LOAN ESTIMATE (LE)

The Loan Estimate Form (replaces the Truth In Lending statement and Good Faith Estimate) – Provided to consumers within (3) three business days after submission of loan application. Provides summary of key loan terms and estimates of loan and closing costs, triggered by the Loan Application.

  • Loan terms – loan amount, interest rate, monthly P&I, prepayment penalty, and balloon payment, if any
  • Projected payments
  • Escrow information/impounds
  • Total estimated costs
  • Closing costs
  • Cash to close

2nd page

  • Estimated settlement fees
  • Cash to close including credits, escrow and down payment
  • Adjustable payment and interest tables
  • Note: All costs related to title start out with the word “title”

3rd page

  • Comparisons including APR and the total amount of interest
  • Other disclosures – appraisal, assumption, servicing, transfer
  • Borrower acknowledgment and signature (not required)
  • From acknowledgement of receipt of the Loan Estimate, consummation is a minimum of 7 days.

 Vocabulary Definitions:

Consummation~ The signing of the note on the loan closing documents.

CLOSING DISCLOSURE  (CDF)

A final written disclosure form that creditors must provide to consumers no later than (3) three business days before consummation of the loan (signing of the note) that  reflects the actual terms and costs of the transaction.  This form replaces the HUD-1 Settlement Statement and is often referred to by the acronym ,CDF.

Business Day~  (Closing Disclosure) all calendar days except Sundays and legal public holidays.

Business Day~ (Loan Estimate) A day on which the creditor’s lender offices are open to the public for carrying on substantially all of its business functions.

TIP~ An acronym standing for Total Interest Percentage; it is the total amount of interest the borrower will pay over the loan term as a percentage of the loan amount.

DELIVERY METHODS ALLOWABLE~

Mail Delivery~ Conveyances not made in person (including email) that are deemed to have been received at the earlier of :  (1) three business days after they are sent or placed in the mail; or (2) upon evidence of receipt. (often referred to as Mailbox Rule)

Personal Delivery~In person, conveyances that are deemed immediately received.

Electronic Delivery – Methods of electronic conveyance, such as email, that are deemed to have been received at the earlier of: (1) three business days after they are sent; or (2) upon evidence of receipt.

Trigger~ Event that initiates a timeline.

Close of Escrow~The consummation of a real estate transaction, when the seller delivers title to the buyer in exchange for payment,by the buyer, of the purchase price.  Pursuant to the AAR Residential Resale Real Estate Purchase Contract, close of escrow “shall occur when the deed is recorded at the appropriate county recorder’s office.”

—————————————————————————————————

NOW LETS TALK JUST A BIT ABOUT HOW TO WORK WITH THE NEW CHANGES AND HAVE A SMOOTH ON TIME TRANSACTION –THE BEST PART~

Smart buying and selling residential transactions that require a loan:

Consumers seeking a residential loan to purchase a home.

Get all your financial documents in order and the paper work handy.

Start shopping around to become knowledgeable of what loans are available.  Check online or with a good lender you feel may work well for you.  Not only are the best rates and loan costs, key, but so is the performance of that lender and how they will work with the new rules to get the job done.

If you are a buyer or seller who desires a 30 day escrow, it may be challenging to attain this goal with the proposed changes and time lines that must be adhered to, as a wait and review before the next loan process is a possibility.

Be a savvy buyer, do your homework up front – find a good lender, feel comfortable and get your application submitted.  Know your options with respect to loans and lenders prior to writing a purchase offer.

Start looking at the market of available properties early, online, and pick a good Realtor to help you get started with receiving the best information on properties that would be a good fit.

This way when you set an appointment to view a property you are already pre-approved. You will save from 10 days to  2 weeks’ time in your escrow process.  If the seller has multiple offers he may be inclined to go with a buyer who is ready and able to close sooner.

When your offer is accepted.  Make sure you understand the time lines which are critical to a smooth transaction. Communicate with your lender, the title company, and your Realtor, timely, and know what is expected from you up front.  Ask for a time line calendar of events – and keep it handy.

If for some reason you must change a loan type or lender – that will trigger more time needed and approval by the seller of that change moving forward. It can affect the close of escrow date and the seller concessions, in some situations, which the seller must be willing to approve.  Shopping up front and picking a good lender is key to a smooth loan process.

It is all about team work here – your team is your Realtor, Lender, Title Company, buyer and seller.

Pick the experts that perform timely and professionally.  The cheaper way to go is not always the best way, but shopping around is a good idea to be smart and prudent and make an informed decision.

Home ownership is one of the best things you can do to build assets, get tax write offs, and have a stable and wonderful home to live in without unexpected rent increases.  Home ownership gives peace of mind and a feeling of family security.

Finally ask for an additional 10 days to two weeks for the close of escrow date to be extended up front for unforeseen time delays – especially with the new rules coming into effect.

For buyers seeking a residential consumer loan ~(TIP) always ask your lender how long they feel escrow will take, prior to presenting an offer.

Close of escrow date 45 days, not to exceed 60 days, would be a great idea…You can always ask for an earlier closing, if the seller is up for it, by amendment, if you are ready, early. What a good feeling that would be!

Watch  for Trendy Monthly News August Edition-  The topic will be HOW TO SET UP EFFECTIVE CLEAN TIME LINE TRANSACTIONS FOR CONSUMER SALES.

August Edition Highlights
  • What to do before the offer to purchase
  • How to coordinate with the lender on timelines
  • Is a cheaper lender always better?
  • Vital things to ask lenders in how they process their timelines to meet the new rules.
  • What to ask the title company regarding timelines and coordinating with the Buyer/Seller/Realtors.
  • How to pick a good Realtor to get the job done
  • What consumers/borrowers/buyers need to do to have a smooth transaction.
  • How to write your contract to best protect your client yet be something that will work for all concerned.
  • Best communication practices for a smooth transaction with a “Consumer” Sale.

Happy 4th Everyone

Editor -
Esther Talbert, Broker CEO Yavapai Realty, LLC
322 S Main St #B Cottonwood, AZ .86326
esther@yavapairealty.com  www.yavapairealty.com
928-634-5546 | Serving the Sedona-Verde Valley since 73

CFPB Announces TRID (TILA RESPA Integrated Disclosure) Grace Period


Patti Nelsen, Assistant VP, SEO

CFPB Announces TRID (TILA RESPA Integrated Disclosure) Grace Period

The Industry welcomes TRID grace period but Congress says it’s not enough.

Some members want a definitive period, more assurances:

  • HousingWire reported on June 3rd that the CFPB will implement a good-faith enforcement grace period for TRID implementation following August 1, 2015. CFPB Director Richard Cordray informed Mortgage Bankers Association (MBA) President David Stevens of the update in a meeting that morning.

Director Cordray also officially announced the grace period in a letter sent in response to the Senate today.  A link to both letters can be found below:

Empire West Title will be monitoring the very latest in these changes as they are available.

Patti2015

Patti Nelsen

Patti will be happy to set up a time to come and teach a group of the up a coming changes effective 1 August, 2015 just email her of your interest.  From the timing of an escrow, new privacy requirements

To how the closing disclosure works.  You can go through the critical time line life of an open escrow based on the new rules.

UPDATED 6/11/2015 – CFPB conference in Atlanta Tuesday and Wednesday and CFPB says now that there will be no “grace period”, however, there will  be leniency.   Now mind you, they would not define “leniency”.

CHANGES IN FEMA FLOOD MAPPING FLOOD INSURANCE – BUILDING REQUIREMENTS


Ongoing and New Changes in Flood Insurance and Building Requirements for your properties impacted by the flood plain

Yavapai County adopted the Flood Damage Prevention Ordinance in 1981    YCFCD

Yavapai County joined the National Flood Insurance Program in 1985

Joined the Community Rating System in 1991

  • Receiving credits for going beyond the minimum standards now a Class 6
  • Giving 20% discounts to Policyholders in high-risk areas
  • Reduced risk & created community resilience

Realty, Insurance and Lending Professionals are better able to inform clients around buying/selling and flood insurance requirements and options.  

YCFCD is here to provide info and expertise to you the consumer~

  • Depth Grids
  • Changes since last FIRM (Federal Insurance Rate Maps)

Results of new or restudy mapping~

  • Insurance and building implications
  • Changes in Base Flood Elevation may occur
  • Properties that are newly identified as moderate or low risk (coming OUT of the Mapped hazard – risk reduced not removed,
  • Properties with no change – but time to review your risk!

Sedona Verde Valley new mapping areas~

  • Verde Village effective Feb 9, 2015
  • Mescal Gulch Clarkdale New maps become effective on May 14, 2015
  • Verde River Restudy Clarkdale Cottonwood Camp Verde areas. Project has been ongoing for a few years mapping is complete but awaiting FEMA publication.

Tentative publication effective in the Fall 2015

EFFECTS OF MAP CHANGES ON BUILDING

Building~

Where the BFE (Base Flood Elevation) has increased or newly mapped into a Zone A.  You will have to build to codes based on these new changes.

IMPACTS OF MAP CHANGES FLOOD INSURANCE

Moderate and low-Risk zones~ B, C, X Shaded X  over 35% of Arizona Flood claims occur here

High-Risk zones~ AE, A#, A, AO, AH  26% chance of flooding in 30 years

Undetermined Risk~  Zone D

Preferred Risk vs Standard Rates

Preferred Risk Policy Rates~

Must be in Zone C, C or X and the time of application AND each subsequent renewal

Fixed Premiums, fixed limits limited loss history.

STANDARD RATES

  • Rate Tables provided in Flood Insurance Manual
  • Risks not eligible for Preferred Risk Policy
  • Flexible limits

NOTE:  Effective April 1, 2015 Newly mapped into high-risk get PRP rates for 12 months after a new map becomes effective.  Rates then increase up to 18% annually.  One time application to all properties newly mapped in since October 2008 – through April 2016.

Moderate or Low Risk going into High Risk from Newly Mapped areas.

DON’T WAIT!!  Buy PRP now as risk is higher than previously identified

Lower BFE into Higher BFE can be eligible to be grandfather the lower BFE for future ratings!!

Procedure~

  • Ensure property is eligible for PRP (e.g. losses, zone)
  • Chose proper PRP building limit (note: contents are included)
  • Rewrite existing SFIP as a PRP, using last renewal date before map change Conversion

Results~

  • No gaps in coverage (no 30-day wait)
  • A refund to the policyholder (“Stay covered and get money back”)
  • Strengthened customer loyalty for the agent
  • Agent keeps commission on old and new policy

 

REFORM FLOOD INSURANCE ENACTED July 6, 2012 to September 30, 2017~

  • Required changes to all major components of the NFIP
  • Ensure rates more accurately reflect the risk

Reform Legislations Impacts on Insurance~

  • Determinations full risk rate
  • Obtain an Elevation Certificate (EC)
  • Ask their insurance agent to rate using EC
  • Estimate when phase in = full-risk Premium
  • Existing each year to year 9
  • Non-primary residence

Surcharges~

  • Are not subject to Premium increase caps
  • $25 Primary Residences
  • $250. For all other buildings
  • Goes to the National Insurance Reserve Fund

VITAL Resources~

General Information

www.YCFlood.com

Technical Questions about the Flood Maps

FEMA Map Informastion eXchange   http:msc.fema.gov

FEMAMapSpecialist@riskmapcds.com

FloodSmart’s Cost of Flooding Tool

www.floodsmart.gov/Partners   Find an Insurance Agent

Be Informed~  On properties you now own or are anticipating purchasing check into the new rules and go to Yavapai or Coconino county flood control department.  They will be very helpful to let you know how your property fits into the new rules and the implications of any flood insurance or building requirements. . . . .

Realtors will lead you in the right direction of where to go to find out where you stand.

Authored by Esther Talbert, Broker CEO Yavapai Realty

CFPB Finalizes “Know Before You Owe” Mortgage Forms


The Consumer Financial Protection Bureau released November 3, 2014 the final rule (around 1900 pages) which sums up the RESPA-TILA Integrated Disclosures Rules.   This rule will be effective for any applications as of August 1, 2015. These rule changes will significantly change the way we do business with respect to applying for loans and closing sales in escrow.

Loan Estimate | Closing Disclosure

The two new forms are considered to be integrated to meet the Consumer Financial Protection Bureau rules.  Further it mandates the use of the two disclosures, the 3 page Loan Estimate will replace the GFE Good Faith Estimate and the Truth in Lending Disclosure and the five page Closing Disclosure will replace the HUD-1 and final Truth in Lending Disclosure.

Basic Changes are as follows. . .Loan Estimate

The Loan Estimate replaces both the GFE under RESPA and the initial Truth in Lending Disclosure under TILA. The Loan Estimate provides a summary of the contemplated loan terms, estimated loan costs, other estimated closing costs, and additional application disclosures. According to the CFPB, consumers will be able to utilize the Loan Estimate when comparing different loans.

If a consumer submits an application, the requirement to provide the Loan Estimate is then required. An application is defined as the submission of six pieces of information: (1) the consumer’s name, (2) the consumer’s income, (3) the consumer’s Social Security number to obtain a credit report (or other qualified identification if the consumer has no Social Security number), (4) the property address, (5) an estimate of the value of the property, and (6) the mortgage loan amount sought. This is the same definition in the proposed rule.  Consumers now may not be required to provide additional information, such as the desired loan product, as a condition to provide a Loan Estimate.

Prior to receiving the six specific items of information, lenders may provide consumers with written estimates, but any pre-application written estimate must contain a disclaimer that it is not an official Loan Estimate.

Once an application is received, the creditor has the obligation to ensure that the consumer is provided with a Loan Estimate within three business days of the consumer’s application.

The Loan Estimate must be provided to the consumer at least seven business days before consummation, and the special “business day” definition, which includes Saturdays. If the Loan Estimate is revised, the result would be the creditors must provide revised Loan Estimates at least four business days before consummation of the loan.

The CFPB recognized that consumers may work with either a mortgage broker or directly with a creditor; therefore, either a mortgage broker or a creditor may provide the Loan Estimate. If a mortgage broker provides the Loan Estimate, the creditor maintains responsibility for compliance with all Loan Estimate requirements.

The first page contains information identifying the borrower and loan, the loan terms, the projected monthly payments, the total estimated closing costs, and the total estimated cash needed to close. The second page breaks down the closing costs in more detail and includes information on prepaid and escrowed amounts, as well as detail on the cash needed to close. The third page includes a summary of loan costs over five years to provide for a comparison with other loan products, and required disclosures regarding the delivery of a copy of an appraisal to the borrower, whether the loan is assumable, whether homeowner’s insurance is required, late payment fee information, and whether the loan servicing may be transferred. The third page also contains a signature block for consumers to confirm receipt of the disclosure.   See  Loan Estimate.

The final rule includes under RESPA for delayed closings for construction loans. For transactions involving new construction, if the creditor expects that closing will occur more than 60 days after the Loan Estimate is provided, the creditor may issue revised disclosures any time prior to 60 days before consummation without regard to the limitations on revising the estimated costs, as long as the original Loan Estimate clearly states that revised disclosures may be issued at any time prior to 60 days before consummation.

What is a Qualified Mortgage and what are the eight ATR underwriting factors I must consider and verify under the rule?

A reasonable, good-faith ATR evaluation must include eight ATR underwriting factors. . .

  1. Current or reasonably expected income or assets (other than the value of the property that secures the loan) that the consumer will rely on to repay the loan.
  2. Current employment status (if you rely on employment income when assessing the consumer’s ability to repay)
  3. Monthly mortgage payment for this loan. You calculate this using the introductory or fully indexed rate, whichever is higher, and monthly, fully-amortizing payments that are substantially. You may already have underwriting policies, procedures, and internal controls that consider these factors. However, you should check your policies and procedures to ensure that they reflect that you will consider each of the eight factors. It may also be helpful to document how you consider the factors. However, the rule does not require validation of underwriting criteria using mathematical models.18 CONSUMER FINANCIAL PROTECTION BUREAU equal (See “What do I include on the debt side of the debt-to-income ratio when determining ATR?” on page 256 for special rules for calculating payments for interest only, negative-amortization, and balloon loans.)
  4. Monthly payment on any simultaneous loans secured by the same property.
  5. Monthly payments for property taxes and insurance that you require the consumer to buy, and certain other costs related to the property such as homeowners association fees or ground rent.
  6. Debts, alimony, and child-support obligations.
  7. Monthly debt-to-income ratio or residual income, that you calculated using the total of all of the mortgage and non-mortgage obligations listed above, as a ratio of gross monthly income.
  8. Credit history.

The rule does not preclude you from considering additional factors, but you must consider at least these eight factors.

Basic Changes Closing Disclosure~

A buyer/borrower or seller refinance/borrower must receive the fully filled out Closing Disclosure and acknowledge receipt of it in writing prior to closing.  From the time they sign and date it, there is a three (3) day waiting period that must occur for them to think about and digest what they have signed and give direction to move forward to close their loan and transaction.

It is quite important to not make any changes in your contract if you are a buyer or seller after the borrower had been approved in underwriting for your loan because this could trigger a review and re-approval by underwriting through your lender which could further extend your time period to be able to close escrow.

The Closing Disclosure replaces both the HUD-1 under RESPA, and the final Truth in Lending Disclosure under TILA. The Closing Disclosure provides a summary of the actual loan terms, the loan costs, other settlement costs, and additional closing disclosures.

Timing~ The creditor must provide the Closing Disclosure to the consumer at least three business days before the consumer closes on the loan. If there are changes to the Closing Disclosure between the time it is issued and closing, depending on the nature of the change, the creditor must provide an updated Closing Disclosure with another three-business-day waiting period, or simply provide an updated Closing Disclosure by closing.  The final rule uses the special definition of “business day,” which is any day other than Sundays and certain legal public holidays.

The changes that require the creditor to provide an updated Closing Disclosure and an additional three-business-day waiting period are: (1) changes to the APR greater than 1/8 of a percent (or 1/4 of a percent for loans with irregular payments or periods), (2) changes to the loan product, or (3) the addition of a prepayment penalty. Less-significant changes can be disclosed on an updated Closing Disclosure without the need for an additional three-business-day waiting period. The proposed rule would have required a new three-business-day waiting period in many more cases when the Closing Disclosure was updated. The CFPB responded to industry comments that the proposed approach would require the rescheduling of many closings. The final rule approach is intended to limit circumstances in which a new waiting period is required to situations with more significant changes.

The creditor is responsible for delivering the Closing Disclosure form to the consumer. A creditor may use settlement agents to provide the disclosure, provided the settlement agent complies with the requirements of the rule, and the creditor must ensure that the Closing Disclosure is provided in accordance with the rule.

The Closing Disclosure is five pages long. The first page is similar to the first page of the Loan Estimate, and contains information identifying the borrower and loan, the loan terms, the projected monthly payments, and the total closing costs and total cash needed to close.

The second page contains an itemization of closing costs and other costs to close the loan, including whether each particular cost is paid by the borrower, seller, or another party. The third page includes a calculation of the cash needed to close and a summary of the borrower’s transaction and seller’s transaction.

The fourth and fifth pages contain additional loan disclosures below and contact information for the creditor, brokers, and settlement agent, & additional disclosures address.

  • Whether the loan is assumable
  • Whether it has a demand feature
  • Whether there is a negative amortization feature
  • Late payment fee information
  • The ability to refinance the loan
  • Whether servicing of the loan may be transferred
  • The responsibility of the creditor to deliver a copy of the appraisal to the borrower
  • Escrow requirements
  • Whether the lender accepts partial payments
  • Tax deductibility
  • Loan contract details
  • Borrower liability after foreclosure

The fifth page also includes a calculation of the total payments, finance charges; amount financed, and total interest percentage over the term of the loan. Finally, the fifth page also requires a signature for consumers to confirm receipt of the disclosure.

Restrictions on Increases in Closing Costs~

The final rule limits the circumstances in which borrowers may be required to pay more for settlement services than the amount stated on the Loan Estimate. Unless an exception applies, charges for the following services cannot increase: (1) the creditor’s or mortgage broker’s charges for its own services, (2) charges for services provided by an affiliate of the creditor or mortgage broker, and (3) charges for services for which the creditor or mortgage broker does not permit the consumer to shop for the provider. Charges for other services can increase, but generally not by more than 10 percent, in the absence of an exception. If a service is not required by the creditor, there is no restriction on cost increases.

The exceptions include situations when: (1) the consumer asks for a change, (2) the consumer chooses a service provider that was not identified by the creditor, (3) information provided at application was inaccurate or becomes inaccurate, or (4) the Loan Estimate expires.

The proposed rule revived a prior Federal Reserve Board proposal to expand the definition of the finance charge, which is then used to calculate the APR, to include a number of additional charges. The expanded APR would have included, among other things, closing agent charges, title agent charges, credit life insurance premiums, voluntary debt cancellation fees, and security-interest charges.

The final rule requires creditors to retain records evidencing compliance with the Loan Estimate and Closing Disclosure requirements for three years from the later of closing or when the disclosure is required. Consistent with existing RESPA requirements, a creditor must, however, retain the Closing Disclosure and all related documents for five years after closing.

The proposed rule would have required creditors to keep records of the Loan Estimate and Closing Disclosure in a standard electronic, machine-readable format. The CFPB removed this provision from the final rule, acknowledging in a blog post that “the data standard we were proposing wasn’t specific enough.” The CFPB still believes that requiring the retention of records in such format is a “good idea” and will study the matter further.

Specific Categories excluded from the rule~

The rule does not apply to the following:

  • Open-end credit plans (home equity lines of credit, or HELOCs)
  • Time-share plans
  • Reverse mortgages
  • Temporary or bridge loans with terms of 12 months or less (with possible renewal)
  • A construction phase of 12 months or less (with possible renewal) of a construction-to permanent loan
  • Consumer credit transactions secured by vacant land
  • Mortgages secured by mobile homes
  • Creditors that make five or fewer mortgages a year

The final rule does not otherwise include an exception for small creditors.

Writing the Purchase Contract with these two new rule form changes~

Some Basics to consider:

  1. When asking for a prequalification from the buyer/borrowers lender be sure to as your buyer if they have received the Loan Estimate 3 pages and have signed it. To keep it to go over the costs when they are given their Closing Estimate for review with the figures.  Ask for a LSU timely to see how the buyer/borrowers requirements are being updated.
  2. Make sure the contract allows for the provision of buyers ability to review the Closing Estimate and it is consistent with the Loan Estimate per the rules.
  3. Timing- Allow approximately 2 weeks for the close of escrow from the time the Closing Estimate is received by the buyer/borrower so that the required rules can be met before closing. You could write on or before that extra 2 week period.
  4. Avoid changes in the contract after underwriting has approved the contract. This could trigger a new underwriting review and approval which could stretch out the close of escrow even longer.
  5. Work closely with the Lender and Escrow Company and your escrow officer with respect to the process for a smooth successful closing. Keep your client informed along the way.  J

A note from the editor~ The forms actually are easier to read and make the disclosures easier to understand for the consumer applying for the loan and the Realtors. 

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