The New Loan Estimate Form
(Part 2 of 5)
(Jeff Sorg, OnlineEd) – The Loan Estimate is a three-page form that replaces the initial Truth-in-Lending disclosure and the RESPA Good Faith Estimate (GFE). The purpose of this new form is to provide consumers with a good faith estimate of credit costs and transaction terms in simple and easily understood language. The form must be presented to the consumer in writing and must contain the information prescribed by the TILA-RESPA integrated disclosure rule. Mortgage loan originators must also satisfy the rule’s timing and delivery requirements.
A quick overview of the three-page new form will show that page one provides the following information:
- General information relating to the loan applicants;
- General information relating to the property to be financed;
- Loan and rate lock status;
- Loan terms;
- Projected payments during the term of the loan; and
- Costs at closing, including the total estimated closings and the estimated cash to close.
The second page of the form goes into more detail relating to:
- Loan costs relating to origination charges, services the borrower cannot shop for, and services the borrower can shop for; and
- Other costs such as taxes and government fees, prepaids, initial escrow payment at closing, miscellaneous costs (such as owner’s title insurance), calculation of cash to close, and an adjustable-interest rate table when applicable.
The third page of the form provides:
- The contact information for the creditor and loan originator;
- Basic information to compare the loan with other loans;
- Other loan considerations relating to appraisal, assumption, homeowner’s insurance, late payment, refinance, and loan servicing; and
- Confirmation of receipt by borrower.
The first issue we must address is what event triggers the required delivery of the Loan Estimate to the consumer. The answer to that question is when a loan originator receives a loan application, the requirement to deliver the Loan Estimate to the consumer is triggered. In order to be considered a loan application, the consumer must provide the following information:
- Social Security Number (to obtain a credit report);
- The address of the property being financed;
- An estimate of the value of the property being financed; and
- The mortgage loan amount sought.
The information required for the Loan Estimate is similar to the information necessary to meet the RESPA definition of a loan application. A mortgage loan originator may collect additional information beyond the six items we just outlined, but cannot require that the borrower provide verifying documentation at this stage or require that the borrower pay any sum as a deposit except for credit report fees.
The mortgage loan originator must deliver a Loan Estimate to the consumer [either by hand or mail] no later than three business days of the receipt of an application. A business day is a day on which the creditor’s or loan originator’s office is open to the public for carrying out substantially all of its business functions.
Generally, the Loan Estimate is binding and revisions cannot be issued because of discovered technical errors, miscalculations, or underestimations of charges. The Loan Estimate can be revised only under certain, specific circumstances. The integrated rule defines a change in circumstance as:
- An extraordinary event beyond the control of any interested party or other unexpected event specific to the consumer or transaction;
- Information specific to the consumer or transaction that the creditor relied upon when providing the Loan Estimate and that was inaccurate or changed after the Loan Estimate disclosure was initially provided; or
- New information specific to the consumer or transaction that the creditor did not rely on when providing the loan estimate.
Some examples that allow for a revised Loan Estimate after it has been initially given to a consumer are:
- Any changed circumstance that cause settlement charges to increase more than permitted.
- Any changed circumstance that affect the consumer’s eligibility for the terms for which the consumer applied for or the value of the security of the loan. For example, if a married couple applied jointly for a loan, and then one of them lost their job, then the income information used on the original loan application is no longer possible.
- Any revisions requested by the consumer.
- An interest rate that was not locked at delivery of the Loan Estimate and subsequently locking the rate causes the points or lender credits to change.
- The consumer indicates intent to proceed with the transaction more than 10 business days after delivery of the original Loan Estimate.
- The loan is for new construction and settlement is hampered by construction delays.
In each of these changes in circumstances, the revised Loan Estimate must be delivered to the consumer within three business days after becoming aware of a change in circumstance that was the basis for the original Loan Estimate. A revised Loan Estimate must be provided to the borrower no later than seven business days before loanconsummation.
Under the integrated rules, consummation is not the same thing as closing or settlement. Consummation is when the consumer becomes contractually obligated to the creditor. This usually occurs when the borrower signs the promissory note and other agreements such as the security instrument. The moment a borrower becomescontractually obligated is a matter of state law, and precise legal definitions may vary from state to state.
Mortgage loan originators are required to calculate the Loan Estimate figures in good faith and consistent with the best information reasonably available to them at the time of the disclosures. To determine whether they have prepared the disclosures in good faith, a consumer will have to compare the difference between the estimated charges originally provided in the Loan Estimate and the actual charges paid by or imposed on the consumer. Generally, if the charge paid by or imposed on the consumer exceeds the amount originally disclosed on the Loan Estimate, it is not in good faith.
This is true under the integrated rules, whether a loan originator later discover a technical error, miscalculation, or underestimation of a charge. In all of these cases, the lender will have to pay the borrower the difference between the charge listed on the Loan Estimate and the charge actually paid by the borrower. We will discuss tolerance limitations in more detail a little later in this segment. For now, be aware that there is little room for error.
(Part 1. Part 2. Part 3. Part 4. Part 5)
For more information about OnlineEd and their education for real estate brokers, principal brokers, property managers, and mortgage brokers, visit www.OnlineEd.com.
This article was published on July 17, 2015. All information contained in this posting is deemed correct and current as of this date, but is not guaranteed by the author and may have been obtained by third-party sources. Due to the fluid nature of the subject matter, regulations, requirements and laws, prices and all other information may or may not be correct in the future and should be verified if cited, shared or otherwise republished.