Teaching Aid for Closing Statement Exercise for Prelicensing

There are many similarities between the old and new forms.

Objectives At the end of this presentation, you should be able to: explain the purpose of the TRID rule. identify critical dates for delivery of the CD. explain the broker’s responsibility for CD. explain similarities between the HUD-1 & BCD. explain the calculations and entries required to complete a closing statement exercise using the Closing Disclosure Core.

Abbreviations CFPB: Consumer Financial Protection Bureau TRID: TILA-RESPA Integrated Disclosures TILA: Truth-In-Lending Act RESPA: Real Estate Settlement Procedures Act TIL: Truth-in-Lending (Statement) GFE: Good Faith Estimate HUD-1: Settlement Statement LE: Loan Estimate CD: Closing Disclosure BCD: Borrower’s Closing Disclosure SCD: Seller’s Closing Disclosure

What WAS the Problem? BEFORE October 2015: Duplicate forms required by TILA and RESPA Dodd-Frank Act was tasked with consolidating the forms

New Disclosure Forms Loan Estimate Early TIL (LE) GFE Closing (CD) HUD-1 Final TIL

LOAN APPLICATIONS RECEIVED New rules apply to LOAN APPLICATIONS RECEIVED on or after October 3, 2015.

If a transaction begins with the OLD forms, it will end with the OLD forms. If a transaction begins with the NEW forms, it will end with the NEW forms.

Who’s Responsible? LENDERS are responsible for knowing which transactions are subject to TRID rule. Real estate brokers should have a GENERAL understanding.

May lenders use the new Loan Estimate and Closing Disclosure forms in excluded transactions (when the forms are not required)?

It will still be used in some transactions. The HUD-1 is… Stayin’ Alive. It will still be used in some transactions.

THE CLOSING DISCLOSURES (CDs)

2 Separate Closing Disclosures: Borrower (Buyer) and Seller Information has been reorganized …but has not changed.

Why are there 2 separate Closing Disclosure forms? Borrower’s confidential loan information is not shared with Seller.

“What HIPAA did to medical offices, TRID has done to closing attorney offices.”

The Biggest Impact for Brokers: The Borrower’s Closing Disclosure must be RECEIVED BY THE BORROWER at least 3 BUSINESS DAYS before Settlement

What is a “Business” Day? A Business Day is Monday-Saturday Sundays and 10 federal public holidays are excluded

Definition of “RECEIVED” If delivered IN PERSON: The CD is “received” on the same day it is provided. If MAILED or delivered ELECTRONICALLY: The CD is “received” on the 3rd business day after delivery OR when lender has EVIDENCE of receipt.

Example If the BCD is RECEIVED BY THE BORROWER on Monday, what is the earliest possible date settlement may occur? Answer: Thursday (unless a federal holiday occurs during the period) Monday Tuesday Wednesday Thursday Delivery Day 1 Day 2 Settlement (3rd business day)

Rules apply to delivery of BCD ONLY No requirements for delivery of SCD to Seller

BCD must be delivered to BORROWER Delivery to Broker / Buyer Agent is NOT Sufficient

only show the BCD to the Buyer and only show the SCD to the Seller. If the lender decides to issue 2 separate closing disclosures, a broker acting as a dual agent should… only show the BCD to the Buyer and only show the SCD to the Seller.

Settlement Statement: Broker Obligations Broker must Disclose AND Confirm Accuracy of all entries of which s/he has direct knowledge

Settlement Statement: Broker Obligations Broker must Review AND Confirm Accuracy of all calculations

Which changes require a new 3-day review of CD? APR increases by MORE than: 1/8% for fixed-rate 1/4% for adjustable Prepayment penalty added Basic loan product changes

Quick Comparison of HUD-1 and Borrower Closing Disclosure

Page 1 of HUD-1 is now Page 3 of Borrower CD HUD-1 page 1 BCD page 3

BCD page 3 – ALMOST IDENTICAL TO HUD-1 $216,000.00 BCD page 3 – ALMOST IDENTICAL TO HUD-1

Page 2 of HUD-1 is now Page 2 of Borrower CD HUD-1 page 2 BCD page 2

BCD page 2 (top half of page) Loan Fees POC items Attorney & Title Fees BCD page 2 (top half of page)

Recording Fees & Excise Tax Inspections & Other Fees Loan Escrows Inspections & Other Fees Brokerage fees BCD page 2 (bottom half of page)

Sample Closing Statement Exercise for Prelicensing (Exercise based on 360-day calendar)

Closing Disclosure Core, Page 1

Loan Costs

Loan Costs: A. Origination Charges Discount Points: 1 point = 1% of loan amount $212,000 x 1% = $2,120.00 Origination Fee: $212,000(loan amount) x 0.75% = $1,590.00 Application Fee: $280.00

Loan Costs: B. Services Borrower Did Not Shop For Borrower-Paid BEFORE Closing Appraisal: $450.00 Credit Report: $55.00

Loan Costs: C. Services Borrower Did Shop For Borrower-Paid Title Insurance: $570.00 $505.40 (Lender) + $64.60 (Owner) = $570.00 Attorney: $650.00 Survey: $400.00 Pest Inspection: $65.00 (Paid BEFORE closing)

Loan Costs: C. Services Borrower Did Shop For Seller-Paid Deed Prep: $85.00

Other Costs

Other Costs: E. Taxes and Government Fees Borrower-Paid Recording Fees: $26.00 (Deed) + $56.00 (Deed of Trust) = $82.00 Seller-Paid Excise Tax: $249,650 rounds up to $250,000 $250,000 / 500 = $500

Other Costs: F. Prepaids Homeowner’s Insurance: $684.00 Mortgage Insurance: $840.00 Interim Mortgage Interest: $212,000 (loan) x 6.5% (interest) = $13,780.00 (interest per year) $13,780 / 360 days = $38.2778 (interest per day) $38.2778 x 8 days (Nov 23-Nov 30) = $306.22

Other Costs: G. Initial Escrow Payment at Closing Homeowner’s Insurance: $684 / 12 months = $57.00 per month $57.00 x 2 months = $114.00 Mortgage Insurance: $840 / 12 months = $70.00 per month $70.00 x 2 months = $140.00 Property Taxes: $2471 / 12 months = $205.9167 per month $205.9167 x 4 months = $823.67

Other Costs: H. Other Seller-Paid Brokerage Commission: $249,650 (sale price) x 6% = $14,979.00

Other Costs: H. Other (continued) Borrower-Paid Home Inspection: $325 (paid BEFORE closing) Courier Fees: $30.00 Seller-Paid Home Warranty: $450.00 Courier Fees: $30.00

Total Closing Costs

Borrower-Paid At Closing column Add all numbers in the Borrower-Paid At Closing column and enter total in J. Total Closing Costs Add all numbers in the Seller-Paid At Closing column and enter total in J. Total Closing Costs

Exam Items 1 & 2: Borrower & Seller Total Closing Costs

Closing Disclosure Core page 2

Borrower’s Transaction: Due from Borrower at Closing

Due from Borrower at Closing Sales Price: $249,650.00 Closing Costs (from page 1): $8,629.89

Due from Borrower at Closing Real Property Taxes: Seller paid taxes for full year. Buyer must repay Seller for 37 days (Nov 24-Dec 30). Tax Calculation: $2471 / 360 = $6.8639 per day $6.8639 x 37 days = $253.96

Due from Borrower at Closing $258,533.85 Add UP the numbers in this section and insert the total on Line K.

Borrower’s Transaction: Paid Already by or on Behalf of Borrower at Closing

Paid Already by or on Behalf of Borrower at Closing Earnest Money Deposit: $3,500.00 Loan Amount: $212,000.00 Due Diligence Fee: $500.00

Paid Already by or on Behalf of Borrower at Closing $216,000.00 Add UP the numbers in this section and insert the total on Line L.

Borrower’s Transaction: CALCULATION

Borrower’s Transaction: CALCULATION $258,533.85 Copy the Totals on lines K and L to the Calculation section. $216,000.00

Borrower’s Transaction: CALCULATION Subtract to determine Cash to Close.

Exam Item 3: Cash to Close From/To Borrower

Seller’s Transaction: Due to Seller at Closing

Due to Seller at Closing Sales Price: $249,650.00 Real Property Taxes: $253.96

Due to Seller at Closing $249,903.96 Add UP the numbers in this section and insert the total on Line M.

Seller’s Transaction: Due from Seller at Closing

Due from Seller at Closing Closing Costs from page 1: $16,044.00 Payoff of First Mortgage: $138,425.00 Due Diligence Fee: $500.00

Due from Seller at Closing $154,969.00 Add UP the numbers in this section and insert the total on Line N.

Seller’s Transaction: CALCULATION

Seller’s Transaction: CALCULATION Copy the Totals on lines M and N to the Calculation section.

Seller’s Transaction: CALCULATION Subtract to determine Cash From/To Seller.

Exam Item 4: Cash From/To Seller

Additional Info for Post 302: Quick Review of Seller’s Closing Disclosure

The Seller’s Closing Disclosure (SCD) SCD page 1 (seller’s total debits & credits) SCD page 2 (seller’s costs/expenses)

SCD page 1 (bottom portion of page) Total Seller Credits Broker Info Total Seller Debits Settlement Agent Info SCD page 1 (bottom portion of page)

Seller Costs/Debits & Seller-Paid Items SCD page 2 (bottom portion of page) Seller Costs/Debits & Seller-Paid Items

Thanks for your participation Technology Questions: corean@ncrec.gov Content Questions: deb@ncrec.gov