Special Information Booklet

 (Part 5 of 5)

(Jeff Sorg, OnlineEd) – A creditor must provide the special information booklet, specifically the RESPA Settlement Costs Booklet, to the consumer who applies for a consumer credit transaction secured by real property no later than three business days after receiving the consumer’s loan application. The booklet does not have to be given to a consumer who applies for a refinance, subordinate lien, or reverse mortgage loan.

The Consumer Financial Protection Bureau has issued an updated version of the Special Information Booklet that incorporates the new Loan Estimate and Closing Disclosure. The new guide is titled “Your Home Loan Toolkit: A Step-by-step Guide.” The CFPB has made this guide available as a PDF download, or it can be ordered from the U.S. Government Printing Office (GPO):

• Download the new consumer home loan toolkit (formerly the Settlement Costs booklet)
• Order the guide from the GPO (Large Version) (Small Version)

The updated Special Information Booklet will be used starting October 3, 2015.

(Part 1. Part 2. Part 3. Part 4. Part 5)

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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.

 

The New Closing Disclosure Form

(Part 3 of 5)

(Jeff Sorg, OnlineEd) – The Closing Disclosure integrates and replaces the final Truth-in-Lending disclosures and the RESPA HUD-1. In general, the Closing Disclosure sets forth the actual terms and costs of the transaction. The Closing Disclosure must be in writing and contain all of the information required. In many ways, the new Closing Disclosure presents most of the same information as existing disclosures, but in a brand new format.

A creditor is responsible for ensuring that the consumer receives the Closing Disclosure no later than three business days before consummation.

If delivery of the Closing Disclosure is by mail, the “mailbox rule” will apply. This rule means you have to add three days to account for mail delivery time to the three days required prior to consummation. The Closing Disclosure would need to be placed in the mail six business days prior to consummation. For purposes of counting days, Saturday is counted as a business day under the mailbox rule.

Remember, consummation is not the same thing as closing or settlement. Consummation occurs when the consumer becomes contractually obligated to the creditor. The exact time when consummation occurs is based upon state law. Consummation generally occurs when the borrower signs the promissory note, the security instrument, such as a mortgage or trust deed, and any other legal documents required by the creditor. Consummation is NOT when the final steps in the settlement or closing process occur, such as recording and disbursement of funds.

In most cases, the settlement agent, on behalf of the creditor, provides the borrower with the Closing Disclosure. In transactions involving a seller, the settlement agent will also provide the seller with a Closing Disclosure.

Another issue is how revisions and corrections to the Closing Disclosure should to be dealt with. The general rule is that creditors must redisclose terms or costs on the Closing Disclosure if certain changes occur to the transaction that causes disclosure inaccuracies. There are three categories of changes that require a corrected Closing Disclosure containing all changed terms.

There are specific changes that can occur before consummation that require a new three-day waiting period. In this case, consummation may need to be postponed to comply with the three-day rule to. Changes that require a new three-day waiting period are usually triggered by the following:

1. The disclosed APR becomes inaccurate. However, there is a 10% tolerance allowed before a new waiting period is required.
2. The loan product changes.
3. A prepayment penalty is added.

Any changes not triggered by one of the three specified events do not require a new three-business day waiting period, but do require a revised Closing Disclosure be provided the consumer no later than consummation.

Sometimes, an event will occur after settlement that causes the Closing Disclosure to become inaccurate, resulting in a change to the amount the borrower or seller paid that is different from what was disclosed. An example would be a when the actual recording fee differs from the estimated amount.

Another event that triggers a revised Closing Disclosure relates to documenting refunds for tolerance violations. In other words, the amount charged exceeded the legal tolerance limits. A revised Closing Disclosure is also to be used to correct non-numerical clerical errors. An error is considered clerical if it does not affect a numerical disclosure and does not affect timing or delivery requirements.

In these instances, a revised Closing Disclosure must be delivered or placed in the mail to the consumer no later than 30 days after receiving sufficient information to determine that changes to the Closing Disclosure is required.

In all cases, the consumer has the right to inspect a revised Closing Disclosure during the business day before consummation.

 

(Part 1. Part 2. Part 3. Part 4. Part 5)

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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.

The Consumer Financial Protection Bureau is requiring the use of a new TILA-RESPA integrated disclosure as of October 3, 2015

(Part 1 of 5)

(Jeff Sorg, OnlineEd) – The Consumer Financial Protection Bureau (CFPB) is requiring the use of a new TILA-RESPA integrated disclosure as of October 3, 2015.

In 2012, the Dodd-Frank Wall Street Reform and Consumer Protection Act directed the newly created CFPB to integrate the mortgage loan disclosures required under the Truth In Lending Act (Regulation Z), known as TILA  and the Real Estate Settlement Procedures Act (Regulation X), known at RESPA. The TILA and RESPA loan disclosures have been used for the past 30 years. These disclosures continue to create confusion for borrowers because of their overlapping and inconsistencies.

The new integrated disclosure forms, which cannot be put into use until October 3, 2015, provide one set of disclosures for all borrowers seeking closed-end consumer mortgages. These integrated forms combine the now existing four disclosure forms into one set of two disclosures.

• The first new form, known as the Loan Estimate Disclosure, is a three-page form. In this form, the Truth In Lending (TIL) disclosure form, and the RESPA Good Faith Estimate (GFE), are combined into one disclosure form designed to help consumers understand the key features, costs, and risk associated with the mortgage loan. This Loan Estimate Disclosure form must be delivered to the consumer within three business days from loan application.
• The second of the new forms is a five-page disclosure known as the Closing Disclosure. This form replaces the TILA and RESPA HUD-1 disclosures. It is designed to provide disclosures to help consumers understand the costs of the loan transaction. The Closing Disclosure should be delivered to consumers at least three business days prior to completing the loan.

These new forms will give consumers clear language information regarding a loan and include information such as interest rate, monthly payments, and all of the costs necessary to close the loan. In designing these forms, the CFPB had the goal of presenting information to consumers in a way to help the consumer decide if they can afford the loan. The forms also make comparing different loan products, including the cost of various loans over time, easier and less confusing.

Beyond understanding the content of the new forms, there is a business problem that arises from these changes. With the faster and more accurate delivery requirement of the charges between the Loan Estimate Disclosure and Closing Disclosure forms, constant and reliable communication will become key between lenders and title agents. During the new process, mortgage loan originators will have to:

• Verify accuracy of the Loan Estimate at time of application;
• Using the stricter RESPA tolerance guidelines, and on the final Closing Disclosure form, reconcile fees between the lender and title closing production systems;
• Overcome challenges with the new requirement in order to support intelligent data standards. For instance, if a lender is not using the same system as the document provider for the initial Loan Estimate form or the final Closing Disclosure, it will not be easy for the mortgage loan originator to reconcile data, documents, and calculations in order to be compliant; and
• the mortgage loan originator will want to provide an audit trail to prove compliance with the regulations that he or she must follow.

What this means is that lenders will need to recognize it is important that data and documents are shared and synced between the lender’s system and the title production systems, and that they are easily and quickly accessible. To achieve this, new electronic processes may be necessary to replace any leftover, traditional paper processes.

With the delivery deadlines and tolerance requirements, the lender is also on the hook for greater accuracy of the GFE/TIL at time of application.

A technology solution to be able to facilitate the electronic sharing and collaboration of data and documents is now critical. On top of that, loan originators will need to keep the process electronic in order to provide evidence and the proof of compliance around receipt of delivery, acceptance, and execution of documents, which the CFPB will eventually audit.

Be warned that mortgage lenders who do not comply with the new disclosure requirements will be subject to CFPB penalties. Theses penalties for violations of disclosure rules can be severe. The general penalties for violations include:

• First Tier – Up to $5,000 per day for each day the violation or failure to pay continues
• Second Tier – Up to $25,000 for each day that a person continues to recklessly engage in a violation of a federal consumer financial law
• Third Tier – Up to $1,000,000 per day for each day that any person knowingly violates a federal consumer financial law

Under the provisions of Truth in Lending law, private lawsuits against the mortgage lender may also be brought.

The TILA-RESPA integrated rule applies to most closed-end mortgages and consumer credit transactions secured by real property. The rule does not apply to the following:

• Home Equity Lines of Credit (HELOCs); and
• Reverse Mortgages.
• Chattel-dwelling loans, such as loans secured by a mobile home or by dwellings not attached to real property. These loans will continue to use the current disclosure forms required by TILA and RESPA.
• Individuals or entities that make five or fewer mortgages in a calendar year, as they are not deemed a creditor under the rule.
• Certain no-interest loans secured by subordinate liens made for the purpose of down payment home buyer assistance or a similar program, property rehabilitation, energy efficiency, or foreclosure avoidance prevention.

Under the previous TILA-RESPA integrated rule, certain loans were subject to TILA, but not RESPA. Under the updated TILA-RESPA integrated rule, the following loans are also subject to the disclosure rules:

• Construction-only loans; and
• Loans secured by vacant land or by 25 or more acres.

Unlike many of the CFPB mortgage rules, the final TILA-RESPA integrated rule does not include an exception for small creditors.

(Part 1. Part 2. Part 3. Part 4. Part 5)

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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.