2 Five Things to Know: Five Things You Need to Know Before August 2015 What Transactions Types Are AffectedWhat Transaction Types Are ExemptThe New Forms – Loan Estimate (LE) & Closing Disclosure (CD)Title Fees - Explaining CD Requirements & Actual FeesClosing vs. Consummation & Transaction Timeline
3 1. What Transactions Types Are Affected? Five Things You Need to KnowBefore August 20151. What Transactions Types Are Affected?The new rules and the new forms apply to all closed-end consumer credit transactions secured by real property, other than reverse mortgages, which include the following types of loans:Purchase moneyRefinance 25 Acres or lessVacant-land Construction-only Timeshare
4 2. What Transaction Types Are Exempt? Five Things You Need to KnowBefore August 20152. What Transaction Types Are Exempt? Consumer loans exempted from the new rules and the new forms are as follows:Reverse MortgagesHome Equity Lines of Credit (HELOCs)Chattel-Dwelling/Mobile Home Only LoansCreditors who originate less than 5 loans in a calendar year
5 2. What Transaction Types Are Exempt? Cont. Five Things You Need to KnowBefore August 20152. What Transaction Types Are Exempt? Cont. The portions of TILA and RESPA governing Reverse Mortgages are not being replaced or deleted. Creditors will be required to issue a TILA disclosure and Good Faith Estimate (GFE) on these types of loans.Settlement agents will be required to use a 2010 HUD-1 settlement statement to close these types of loans. Loans in progress (applications submitted prior to August 1, 2015) are not subject to the new rules or the new forms.
6 New Terms Closing Disclosure Creditor = A Loan Originator, Lender or Mortgage BrokerConsummation = The day the borrower becomes legally obligated to repay the debt – the date of the signing of the loan documentsBusiness Day = A day on which the creditor’s offices are open to the public for carrying on substantially all of its business functionsFor purposes of rescission under TILA – all calendar days EXCEPT Sundays and Legal Public Holidays
7 Know before you close.The LE & CD will be available in translated versions that include Spanish, Chinese, Japanese, Russian, Tag-a-long?
8 Loan Estimate| At-a-Glance Know before you close.Loan Estimate| At-a-GlanceThe new form is 3 pages longNew form replaces the GFE and Early TILAThe creditor is not allowed to revise and re-disclose if charges go up or down prior to the closingCreditor errors are not legitimate reasons for revising Loan EstimatesCurrently, borrowers receive two separate forms from their lender at the beginning of the transaction: the Good Faith Estimate ( GFE), a form required under the Real Estate Settlement Procedures Act (RESPA), and the initial disclosure required under the Truth-in Lending Act (TILA). For loan applications taken on or after August 1, 2015 the creditor will instead use a combined Loan Estimate form intended to replace the two previous forms. The new three-page Loan Estimate form must be provided to borrowers on a timetable similar to the current receipt of the GFE.The creditor can only reissue a Loan Estimate based on 6 events which qualify as a “Changed Circumstance”Changed Circumstance Affecting Settlement Charges – changes that cause the sum of all estimated charges to increase by more than 10%Circumstances Affecting Eligibility – Borrower creditworthiness or value of the of the collateral causes charges to increase (i.e. job loss/low appraisal)?Revisions Requested by the Consumer – if borrower requests changes to the mortgage loan that change the settlement charges or terms of the loanInterest Rate Dependent Charges – if the interest rate hasn’t been locked, expires, etc. (Lender to give examples)Expiration – if a borrower doesn’t express an intent to continue with the transaction within 10 business days of receiving the Loan EstimateDelayed Settlement Date on a Construction Loan – when the LE is delivered 60 days prior to consummation of the transaction
9 Receiving the Loan Estimate Lender must deliver within three business days of the lender’s receipt of an “application”Application – automatically occurs when lender receives six pieces of information:Borrower(s) Name(s)IncomeSocial Security Number(s)Property AddressEstimated Value of PropertyMortgage Loan Amount
10 Loan Estimate | pg.1 Basic Information Loan Terms Projected Payments Costs at Closing
11 The Loan EstimateBasic Transaction InformationBasic Loan Terms
12 The Loan Estimate Information about the New Monthly Mortgage Payment Estimates amount borrower will need at closing
13 Loan Estimate | pg.2Loan CostsOther CostsCalculating Cash to Close
16 Owner’s Title Insurance Any simultaneous issue discount must be applied to the owner’s policy premium (and not the loan policy premium).Owner’s Coverage+ Simultaneous Issue Loan Premium– Full Loan Premium= Owner’s Rate
17 ExampleOn the purchase of a $300,000 residence with a $240,000 loan closed simultaneously, an approximation of actual costs and the redistributed disclosure “costs” would be:Owner’s Policy Premium:$1,090.00Lender’s Policy Premium (Full-Premium Rate):$928.00Lender’s Policy Premium (Simultaneous Issue Rate):$469.00Seller’s Cost per ContractBuyer’s Cost per ContractSeller’s “Cost” per DisclosureBuyer’s “Cost” per Disclosure“Cost” Difference – Seller“Cost” Difference – BuyerOwner’s Policy$1,090$0$631 ($1,090 +$469 ‐ $928)$459 less ($1,090‐$631)Lender’s Policy$928$459 more ($928‐ $469)
21 Receiving the Loan Estimate Except for credit report, no fees chargeable until after Loan Estimate is providedLender must attach separate Provider List similar to that currently used with the GFEMust include all services which the borrower may need for the transaction (not just items for loan)
23 Re-DisclosureThe creditor can only reissue a Loan Estimate based on six events which qualify as a “Changed Circumstance.”Changed Circumstance Affecting Settlement Charges – changes that cause the sum of all estimated charges to increase by more than 10%.Circumstances Affecting Eligibility – borrower creditworthiness or value of the collateral causes charges to increase.Revisions Requested by the Consumer - if borrower requests changes to the mortgage loan that change the settlement charges or terms of the loan.
24 (continued) “Changed Circumstance.” Re-Disclosure(continued) “Changed Circumstance.”Interest Rate Dependent Charges – if the interest rate has not been locked or a locked interest rate has expired, the charge or credit for the interest rate chosen, the adjusted origination charges, per diem interest, and loan terms related to the interest may change.Expiration – if a borrower does not express an intent to continue with the transaction within ten business days.Delayed Settlement Date on a Construction Loan – when the Loan Estimate is delivered sixty (60) days prior to consummation of the transaction
25 Closing Disclosure | At-a-Glance Know before you close.Closing Disclosure | At-a-GlanceThe new form is 5 pages longNew form replaces the TILA and HUD-1One closing disclosure is required for each loanCharge descriptions on both the loan estimate and closing disclosure must matchThe combination of forms continues at the end of the transaction as well, with the HUD-1 Settlement Statement and the final TILA forms now combined into a single Closing Disclosure form. This new five-page form is used not only to disclose many terms and provisions of the loan, but also the financial transaction of the closing of the sale.The line numbering on the HUD-1 familiar to most of us is gone. Instead, the fees and charges are placed on the Closing Disclosure in one of seven areas: Origination ChargesServices Borrower Did Not Shop ForServices Borrower Did Shop ForTaxes and Other Government FeesPre-paidsInitial Escrow Payment at ClosingOther
26 Who prepares the new Closing Disclosure Form? The Lender is primarily responsible for the preparation and delivery of the Closing DisclosureThe Lender may permit the Settlement agent some portions or all of the form and/or deliver the formSettlement Agent liability – for those portions prepared or deliveredLender remains responsible for all portions of the Closing Disclosure to “ensure the disclosures are provided” in accordance with the rule
27 Closing Disclosure| pg.1 Basic InformationLoan TermsProjected PaymentsCosts at Closing
28 Closing Disclosure| pg.1 Close DisclosureClosing Disclosure| pg.1Basic Transaction Information
29 Closing Disclosure| pg.1 Close DisclosureClosing Disclosure| pg.1Description of Basic Loan Terms
30 Closing Disclosure| pg.1 Information about the New Monthly Mortgage PaymentAmount includes monthly obligations on property even if not included in impound amount
31 Closing Disclosure| pg.1 Cash to Close – shows the buyer/borrower the amount necessary for closing
40 Three different three-day periods in closing Closing DisclosureThree different three-day periods in closingThe 3-day right of rescission (“3-day rescission”) under TILAPresently applicable to most refinance transactionsNot impacted by the Final RuleThe 3-day waiting period (“3-day waiting”) after delivery of the Closing Disclosure, the Borrower has 3 days to review before a closing may occurThe 3-day delivery period for delivery of the Closing Disclosure (“3-day delivery”) –Unless the Closing Disclosure is delivered personally, the Rule “deems” it delivered three business days laterPeriod may be shortened by actual confirmation of receipt
42 Changes to initial Closing Disclosure after delivery Only a few changes will require another 3-day waiting period –Change in the loan program Example – moving from fixed rate to an adjustable rate loanChanges to Annual Percentage Rate (APR) greater than 1/8 % Applies only to increases in APR items , other increases do not trigger a new disclosure with waiting period. Caution – other increases may still cause tolerance violations The addition of a prepayment penalty fee after the initial disclosure But , all changes require a new Closing Disclosure to be prepared and delivered at or before “consummation”.Since the buyer/borrower will receive a Closing Disclosure several days before the closing (and likely a few days before a walk-through on the property), buyers/borrowers will likely receive a new, adjusted Closing Disclosure at the closing showing any changes that occurred between the initial disclosure and the closing, including adjustments due to timing of the closing, walk-through adjustments and other matters.But changes may not end there and CFPB mandates that changes in financial disclosure numbers (i.e. changes in a recording fee) in any amount must be re-disclosed, even post-closing.
43 Tolerance Rule Changes Closing DisclosureTolerance Rule ChangesBoth TILA and RESPA previously contained tolerance rules:TILA rules generally required a re-disclosure if finance charges or APR exceeded thresholdRESPA actually provided penalties (“tolerance violations”) if an item, or series of items, exceeded a monetary threshold
44 Tolerance Rule Changes Closing DisclosureTolerance Rule ChangesChanges to tolerance rulesAddition to “zero tolerance” category (may not change for numbers on Loan Estimate)Third Party Services where the provider is selected by the LenderThird Party Services provided by an affiliate of the Lender
46 Civil PenaltiesThe new rules replace the Truth-in-Lending Act and sections 4 and 5 of RESPA.Unlike TILA and RESPA, the new rules contain enforcement provisions and fines for violating any act or omission of the federal consumer financial law.TierPenalty/FineFirst TierUp to $5,000/day for each day the violation or failure to pay continuesSecond TierUp to $25,000/day for each day that a person continues to recklessly engage in a violation of a federal consumer financial lawThird TierUp to $1,000,000/day for each day that any person knowingly violates a federal consumer financial law
47 Closing Disclosure to the Seller Settlement Agent is responsible for providing the Closing Disclosure to the SellerClosing Disclosure format for the seller may be either:The same format as for Borrower, but items related solely to borrower (i.e., loan disclosures) and using only seller data; orUse the separate CFPB seller’s disclosure formDisclosure must be delivered to the Seller on or before “consummation”; no 3-day waiting period3-business day delivery period applies, except for personal delivery.