CFPB AND THE REO TRANSACTION What You Need to Know Before you Close August 20, 2015

CFPB – Know Before You Close Be able to explain the new loan Estimate and Closing Disclosure After the 2008 financial meltdown, Congress established the Consumer Financial Protection Bureau (CFPB). Among its first tasks was the combination of forms provided to borrowers at both the beginning and end of their loan transaction. In 2013, CFPB published its final rule, revealing these two new combined forms. Currently, borrowers receive two separate forms from their lender at the beginning of the transaction: the Good Faith Estimate (GFE) and the initial disclosure required under Truth in Lending Act (TILA). For loan applications taken on or after August 1, 2015 the creditor will use a combined Loan Estimate form intended to replace the two previous forms. With the HUD-1 Settlement Statement and the final TILA fors now combined into a single Closing Disclosure form, the 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.

CFPB – The New Forms Being Introduced Any residential loan originated on or after October 3, 2015 will be subject to the rules and forms set for the by the CFPB. New regulations issued under the new rules will be enforced February 1, 2016 The Rule replaces the Good Faith Estimate (GFE) and early TILA form with the new Loan Estimate It also replaces the HUD-1 Settlement Statement and final TILA form with the new Closing Disclosure Currently, borrowers receive two separate forms from their lender at the beginning of the transaction: the Good Faith Estimate (GFE) and the initial disclosure required under Truth in Lending Act (TILA). For loan applications taken on or after August 1, 2015 the creditor will use a combined Loan Estimate form intended to replace the two previous forms. With the HUD-1 Settlement Statement and the final TILA fors now combined into a single Closing Disclosure form, the 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.

What does a REO Real Estate Broker Need to Know Before August? Timing of closings are heavily impacted by the disclosure delivery rules You should be able to explain the new Loan Estimate and Closing Disclosure Title fees may need to be adjusted at closing and explained Line numbers have been removed and there are now 7 fee areas on the Closing Disclosure The buyer will likely receive more than one Closing Disclosure Buyers should not expect to make any changes at closing (repair credits) Sellers should not do anything that would require changes at closing

The New Closing Disclosure Page 1. Loan terms Loan amount Interest rate Monthly P&I Any prepayment penalty or balloon payment This page also provides the projected payments over the life of the loan and discloses to the borrower what amounts will be deposited into their impound account. Page 1 provides the total Estimated closing costs and cash to close.

The New Closing Disclosure Page 2. The second page is similar to the current Page 2 of the HUD-1 Settlement Statement. It provides a breakdown of all the closing cost details and lists all loan costs and other costs paid by borrower, seller and other parties.

The New Closing Disclosure Page 3. The third page displays a Calculating Cash to Close table which provides a comparison To the charges disclosed on the Loan Estimate. This page also shows the summaries of the borrower and Seller costs and credits, similar to the current Page 1 of the HUD-1 Settlement Statement. Pages 2 and 3 are the pages that will be closely reviewed by the REO Broker, the Seller and the Seller’s attorney.

The New Closing Disclosure Page 4. The fourth page contains disclosures about other Terms of the loan, including: Whether the loan is assumable If the loan has a demand feature May impose a late payment fee and when it’s incurred If the loan has negative amortization feature Whether the lender will accept partial payments Informs the borrower the lender will have a security interest in their property The page also includes a table describing what charges will be impounded and how much will be collected each month. Page 4 also includes adjustable payment and Interest rate tables if they are applicable to the loan.

The New Closing Disclosure Page 5. On the fifth page under the heading “Loan Calculations: the consumer will find the: Total of payments over the life of the loan Finance Charge Amount financed Annual Percentage Rate (APR) Total interest percentage information Under “Other Disclosures” the consumer will find: Appraisal (if applicable) Contract details Liability after foreclosure Refinance information Tax deductions

How will the closing timeline be impacted? REO CLOSING TIMELINE Creditor provides Loan Estimate to Consumer Consumer indicates an intention to proceed with Application Copy of Real Estate Contract received by Creditor Title Insurance product is ordered/updated and amounts disclosed to Creditor Appraisal is Ordered HOA Documents are ordered for early procurement necessary for Closing Disclosure

How will the closing timeline be impacted? REO CLOSING TIMELINE Creditor verifies costs for any necessary changes on the loan Estimate All transfer taxes, HOA Dues, municipal liens, closing cost or repair credits and all other costs affecting closing must be provided to lender for accurate loan disclosure Closing Disclosure prepared and delivered to consumer Consumer must receive the Closing Disclosure no less than 3 business days prior to the consummation. If any changes must be made, the 3 day time period will start over Consummation of Closing takes place Disbursements may occur for purchase transactions

Sample Timeline

Sample Timeline

Sample Timeline

The New Role of the Settlement Agent On preliminary and final Closing Disclosure, title policy costs are not shown as before Final HUD-1 is NOT executed. It is replaced with the Closing Disclosure Closing Disclosure must be prepared and delivered by lender or settlement Agent to buyer no less than 3 business days prior to closing Settlement Agent will prepare and deliver to Seller the Sellers Disclosure on or before the day of consummation. Last minute changes that require re-disclosure: Changes that have the effect of increasing the APR by more than 1/8th of 1% Changes that have the effect of changing the loan product Changes that add a prepayment penalty to the loan

What Do Real Estate Brokers Need to do to Prepare for the Changes in the Process? The Real Estate professional is an initial consumer touch point with a critically important role. You are in a great position to support consumers by: Being well trained and informed on the new regulations and documentation Being an active participant and effective communicator in the transaction timeline Remembering the importance of timing and accuracy when negotiating contracts, closing cost credits and municipal or HOA payoffs Interfacing Effectively with Consumers Work Closely with lender and title professionals for consistent information to the consumer. Make sure there are regular updates between the parties Know who to contact at the lender Don’t seek to alter planned closing dates without good advance notice and consideration

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