The August 1, 2015 implementation date of the Consumer Financial Protection Bureau (CFPB) rule integrating the TILA-RESPA disclosures is right around the corner.
By now you might have heard of CFPB, but the question still remains, “How will it impact me?” While CFPB will not significantly impact your day-to-day processing of sales, your seller and buyer clients will be looking to you for general information about the new rules and forms, as well as the impact on both the loan process and the closing of the transaction.
Any loan application made after August 1, 2015 will be processed and closed under the new CFPB requirements. GONE is the Good Faith Estimate; GONE are the Truth-In-Lending Statements and the HUD-1 Settlement Statements. In their place are the new Loan Estimate and the 5-page Closing Disclosure.
The Consumer Financial Protection Bureau (CFPB) released a new toolkit that guides consumers through the process of shopping for a mortgage and buying a house. Developed as part of the CFPB’s “Know Before You Owe” mortgage initiative, the toolkit will help consumers take full advantage of the new Loan Estimate and Closing Disclosure forms that lenders are required to begin providing in August.
Your Home Loan Toolkit is available at: http://files.consumerfinance.gov/f/201503_cfpb_your-home-loan-toolkit-web.pdf
Can you explain the new Loan Estimate and the Closing Disclosure?
Loan Estimate – 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 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 3-page Loan Estimate form must be provided to borrowers on a timetable similar to the current receipt of the GFE.
Sample copy of the new Loan Estimate:
Closing Disclosure – The combination of forms continues at the end of transaction as well, the HUD-1 Settlement Statement and the final TILA forms now combined into a single Closing Disclosure form. This new 5-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.
Sample copy of the new Closing Disclosure:
Timing of a Closing will be impacted by Closing Disclosure Delivery
As part of the final rule creating the two new combined forms, the CFPB determined that borrowers would be better served by having a short time to review the new Closing Disclosure prior to signing their loan documents. As a result, CFPB mandated borrowers have three (3) days after receipt of the Closing Disclosure to review the form and its contents. However, the 3-day review period starts upon “receipt” of the Closing Disclosure by the borrower. Unless some positive confirmation of the receipt of the form (i.e. hand delivery), the form is deemed received three (3) days after the delivery process is started (i.e. mailing). As a result, the combination of the “Delivery Time Period” and the “Review Time Period” results in SIX (6) business days from mailing to loan signing.
The rule defines a business day as all calendar days except Sundays and the legal public holidays specified in 5 U.S.C. 6103(a).
Adjustments to Closing Figures
If a change occurs between the time the Closing Disclosure was provided and the closing, a new form must be prepared and provided again at least three (3) days before closing for the following reasons:
- Changes to the APR above 1/8 of a percent for most loans and 1/4 of a percent for loans with irregular payments or periods
- Changes to the loan product; and
- The addition of a prepayment penalty to the loan.
Line Numbers have been Removed on Closing Disclosure
The Closing Disclosure mirrors the Loan Estimate, which means the Closing Disclosure form does not follow the line numbering of the old HUD-1. While the top section on the first page contains essentially the same information as the HUD-1, the rest of the information has moved. Fees and charges are placed on the Closing Disclosure in one of the following areas:
- Origination Charges
- Services Borrower Did Not Shop For
- Services Borrower Did Shop For
- Taxes and Other Government Fees
- Initial Escrow Payment at Closing
Individual charges within each of the groupings are listed alphabetically.
The new Closing Disclosure form will dramatically impact long-standing practices in the sale of real estate, especially in the timing and conduct of the closing. The most prominent changes are the two 3-day requirements and the change of the order of information on the Closing Disclosure. The Rule requires significant changes to the way you are currently doing business. You should begin now, if you have not already, to be prepared for August 1, 2015 effective date.