Loan Estimate

CFPB issues a factsheet on title insurance disclosures

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Also updates disclosure FAQs

cfpb-logoThe Consumer Financial Protection Bureau (CFPB) has recently issued two documents that may help closing attorneys.

The first document is a factsheet on TRID title insurance disclosures. This document addresses differences between state disclosures and TRID disclosures for simultaneous issue rates. It also addresses the situation where the seller pays for title insurance.

The second document is an updated list of frequently asked questions (FAQs) on the TILA-RESPA Integrated Disclosures. The additions address seller paid costs, total payments on the closing disclosure, accounting for negative prepaid interest and whether a lender may require the consumer to sign and return the Loan Estimate and Closing Disclosure.

National Association of Realtors® Reports on TRID Survey

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Real estate practitioners should expect changes in contracts

NAR

The Research Department of the National Association of Realtors® surveyed members in August about their awareness and preparation for the changes in residential closings being implemented by the Consumer Financial Protection Bureau in October of 2015. The most dramatic change is eliminating the current disclosure forms in favor of a Loan Estimate and Closing Disclosure, collectively called the TILA RESPA Integrated Disclosures (TRID).

The results of the survey were detailed in an Executive Summary entitled “TRID: REALTORS® and the New Closing Process”.

The best news from the report is that 71.2% of the respondent members rated their level of preparedness as average or better. Many stated they are taking action and working with their industry partners to prepare for a smooth transition. More than 80% of respondents indicated they have taken some form of TRID training.

Dirt lawyers should expect to see changes in residential form contracts. More than half of respondents indicated they will adjust contracts to reflect longer closing time frames, and almost a third indicated they plan to adjust contracts to include new contingencies.

Take a look at the following chart for more information on how Realtors® plan to deal with the new rules.

NAR Realtors Chart

Although it is anticipated that the changes may introduce new burdens on lenders, closing attorneys and REALTORS®, many of the respondents indicated the number of delayed closings has been low in the past, and they will continue to work with their industry partners to help make the transition smooth.

Real estate lawyers who have not reached out to their REALTOR® contacts should do so soon and often to assist with the transition!

Five Things Dirt Lawyers Need to Know Before August 1

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Prepare now for a smooth transition to the new CFPB regulations and forms

Our company has put together some general information about the CFPB regulations that become effective on August 1. I’m sharing a few tips with the letstalkdirtsc.com audience in an effort to assist with a smooth transition.

1 HandWhat transaction types are affected and exempt? The new rules and forms apply to most closed-end consumer credit transactions secured by real property. The following types of loans are affected:

  • Purchase money mortgages;
  • Refinances;
  • Mortgages on 25 acres or less;
  • Mortgages on vacant land;
  • Mortgages for construction purposes only; and
  • Mortgages on timeshares.

Consumer loans exempted from the new rules and forms are:

  • Reverse mortgages;
  • Home equity lines of credit (HELOCs);
  • Loans on chattel-dwelling/mobile homes only; and
  • Loans by creditors who originate less than five loans in a calendar year.

Creditors will be required to use a TILA disclosure and Good Faith Estimate (GFE), and closing attorneys will be required to use a 2010 HUD-1 Settlement Statement on the exempt loans.

Loans in progress (applications submitted prior to August 1, 2015) are not subject to the new rules or the new forms.

2 HandWhat are the new rules and forms? On November 20, 2013, the CFPB announced the completion of the new integrated mortgage disclosure forms along with their regulations (RESPA Regulation X and TILA Regulation Z) for the proper completion and timely delivery to the consumer.

The Loan Estimate – Currently, borrowers receive two forms from their lender at the beginning of the transaction: the GFE and initial TILA disclosure. For loan applications taken on or after August 1, the creditor will instead use a combined Loan Estimate form.

The Closing Disclosure – The HUD-1 Settlement Statement and the final TILA disclosure form have been combined into a single Closing Disclosure form. This new five-page form contains many loan terms and provisions in addition to the closing figures. Several earlier letstalkdirtsc.com blogs discussed which lenders that have announced they will prepare and deliver the Closing Disclosure. It appears that in all cases, closing attorneys will prepare the seller’s Closing Disclosure and a separate closing or disbursement statement to facilitate disbursement.

forms in out

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How will the timing of a closing be impacted by Closing Disclosure delivery? The new rule requires borrowers to have three business days after receipt of the Closing Disclosure for review. The three-day review starts on the receipt of the form by the borrower. Absent some positive confirmation of receipt such as hand delivery, the form is “deemed received” three 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 business days from mailing to closing.

After delivery of the initial Closing Disclosure, the following changes would require a re-disclosure and a new waiting period:

  • Increase of the APR by more than 1/8%;
  • Change in the loan program, for example, fixed rate to ARM; and
  • Addition of a pre-payment penalty.

Closing Disclosure Delivery Timeline Chart4 Hand

 

How will the communication of title and closing figures be handled? Lenders will continue to need accurate estimates of title and closing figures. Preparation of the Closing Disclosure will require a collaborative effort between lenders, closing attorneys and other vendors and may require fees to be submitted as early as two weeks prior to closing. Several lenders have announced that they will use electronic portals to send and receive information, eliminating the use of mail, e-mail and faxes between lenders and closing attorneys.

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How are title charges reflected on the new forms? The list of charges involving title insurance and closing activities must be grouped together and preceded by the word “Title”.

The CFPB requires that the full premium, not the discounted simultaneous issue premium, must be disclosed for the loan policy. The owner’s policy premium will be shown as “optional” and will be the total cost of the owner’s policy discounted by the cost of the loan policy and adding the simultaneous issue premium. Confusing?  Yes!

The line numbers have been removed from the HUD-1 form, and there are now seven fee areas:

  • Origination charges;
  • Services borrower did not shop for;
  • Services borrower did shop for;
  • Taxes and other government fees;
  • Pre-paids;
  • Initial escrow payment at closing; and
  • Other

Charges within each of these major groupings are listed alphabetically. Columns are provided to separate charges of the buyer, the seller, and others, as well as columns for payments both before and at closing.

Software and title insurance companies are doing extensive training in the form of seminars, webinars and written communications. If you intend to be a residential dirt lawyer after August 1, get yourself and your staff trained!

SunTrust Requires ALTA Best Practices Compliance by July 1

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… AND indicates it will produce and deliver Closing Disclosures.

suntan lotionMaking a significant announcement with a tight deadline, SunTrust Mortgage revealed in an April 22 letter to its settlement service providers (closing attorneys in South Carolina) that it will require them to comply with ALTA’s Best Practices and to complete an ALTA Self-Assessment no later than July 1, 2015.*

The letter also announced that SunTrust, following the lead of Well Fargo, Bank of America, CitiBank and Chase, will produce and deliver Closing Disclosures to borrowers and will require closing attorneys to provide complete and accurate title and settlement charges up to two weeks prior to scheduled closing dates.

SunTrust also plans to handle Closing Disclosure revisions and expects closing attorneys to provide timely notice of any changes in the closing numbers, including changes that occur after closing.

Closing attorneys will be responsible for preparing and delivering the seller’s Closing Disclosure on purchase transactions. A signed copy of the seller’s Closing Disclosure will be required by SunTrust as a condition of funding approval.

SunTrust will require an attestation form from closing attorneys for each closing, confirming the ability to comply with the new rules and expectations.

* The letter directed closing attorneys to www.alta.org/bestpractices/index.cfm for more information on ALTA’s Best Practices and offered assistance from SunTrust via e-mail at TitleSettlementMgmt@SunTrust.com and mail at Title/Settlement Management, SunTrust Mortgage, Inc., Mail Code: VA-INSB-7882, 5600 Cox Road, Glen Allen, VA 23060.

Five things lenders need to know before August

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Dirt lawyers: Educate your lender contacts!

Our company has developed resources to equip dirt lawyers to educate lenders about how the CFPB will impact them beginning August 1.  I’m sharing a few tips with the letstalkdirtsc.com audience because everyone will benefit if lenders are prepared.

As we have traveled the Palmetto state talking to lawyers, real estate agents and lenders, we have learned that many of the local folks are not familiar with the new rules, even the significant players in the market. We understand the corporate offices of national lenders may not have pushed this information down to the local level at this point. Any lawyer who will provide valuable information to local contacts now will be perceived as an important partner!

This is a primer, a very basic beginning point. As the software companies complete their updates, everyone involved will be trained on the details of the new rule and forms.  For now, let’s give our lender partners the following information:

1 flapWho will be responsible for preparing the Closing Disclosure? The lender will be ultimately responsible for preparing the CD (the document that replaces the HUD-1 and final TIL Disclosure). Four national lenders, Bank of America, CitiBank, Wells Fargo and Chase, have announced that they will prepare the CD. We anticipate that smaller banks may continue to rely on closing attorneys to prepare this important document. Closing attorneys will be responsible for preparing the seller’s side of the CD in all cases.

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Who will be responsible for delivering the Closing Disclosure? The rule requires that the borrower must receive the CD three days prior to closing. This actually translates to delivery six days prior to closing to accommodate transit time. The rule allows the closing attorney, at the lender’s discretion, to deliver the CD. The four banks who have announced that they will prepare the CD will also deliver it.

Closing Disclosure Delivery Timeline Chart

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How will closing attorneys and lenders communicate information contained in their respective systems? The big banks will most likely use some form of electronic communication. Some have already announced that they will use Real EC’s Closing Insight™ Most closing attorneys will work with settlement software companies (such as SoftPro) to connect with these systems. Regardless, information will have to be exchanged earlier to accommodate the delivery requirements of the CD.  Some experts have predicted that the numbers will have to be exchanged between lawyers and lenders no later than ten days prior to closing.

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Who will make changes to the CD? Changes to the CD may occur prior to closing, necessitating adjustments, re-printing, and delivery of the corrected CD at closing. Lenders and lawyers will have to discuss who will make the pre-closing changes. Changes to the settlement numbers on the CD may also occur after closing, requiring preparation and delivery of a revised CD. For example, if recording fees change, the CD will have to be revised. Previously, lawyers had the responsibility for these post-closing changes. Under the new rule, the lenders have primary responsibility, but they may delegate this responsibility to closing attorneys.

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How will closing attorneys communicate title and settlement fees for use in the new forms? Lenders will continue to need accurate estimates of title and settlement fees for the preparation of the Loan Estimate and the Closing Disclosure. In addition, for transactions in which an owner’s policy will be issued, the rule prescribes special mathematical calculations for the disclosure of the owner’s and lender’s title insurance premiums, which may require receipt of rates for both a stand-alone and simultaneously issued lender’s policy, as well as the owner’s policy rate.

Good luck educating your referral sources!

Five Things Real Estate Agents Need To Know Before August

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 Dirt lawyers: Educate your real estate agents!

Our company has developed resources to equip dirt lawyers to educate real estate agents about how the CFPB will impact them beginning August 1.  I’m sharing a few tips with the letstalkdirtsc.com audience because everyone will benefit if real estate agents are prepared.

This is a primer, a very basic beginning point. The CFPB will not significantly impact the day-to-day processing of sales, but buyers and sellers will look to real estate agents for general information about the new rules and forms, as well as the impact on the loan process and the closing. As the software companies complete their updates, everyone involved will be trained on the details of the Loan Estimates and Closing Disclosures.  For now, let’s give real estate agents the following information.

1They should be able to explain the Loan Estimate and Closing Disclosure before August 1. The Good Faith Estimate (GFE), a form required by the Real Estate Settlement Procedures Act (RESPA), and the initial Truth-in-Lending disclosure (TIL), a form required by the Truth-in-Lending Act (TILA) have been combined into a new form, the Loan Estimate. For loan applications taken on or after August 1, the three-page Loan Estimate will replace the GFE and the TIL and must be delivered within three business days of the application. The new five-page Closing Disclosure will replace the HUD-1 Settlement Statement and the final TILA form.

2The timing of a closing will be impacted by Closing Disclosure delivery.  The CFPB has determined that borrowers will be better served by having three days after receipt to review the Closing Disclosure prior to the closing. Absent a positive confirmation of receipt of the form (i.e., hand delivery), the form is “deemed received” three days after the delivery process is started (i.e., mailing). Several lenders have already announced that they will deliver the forms six days prior to closing.

Closing Disclosure Delivery Timeline Chart

3Title fees may need to be adjusted at closing and explained. The full premium for the lender’s title policy must be reflected on the Loan Estimate and the Closing Disclosure despite the fact that we have a “simultaneous issue” discount in our filed rates in South Carolina. The discount that title insurance companies in South Carolina offer lenders must be deducted from the charge for the owner’s policy. Also, the owner’s policy will be shown as “optional” on both documents. Closing attorneys may look to real estate agents to assist them in explaining the value of owner’s title insurance.

4Line numbers have been removed and there are now seven fee areas on the Closing Disclosure. The familiar line numbering on the HUD-1 will disappear. Instead, the fees and charges are placed on the Closing Disclosure in one of seven areas:

  1. Origination charges;
  2. Services borrower did not shop for;
  3. Services borrower did shop for;
  4. Taxes and other government fees;
  5. Pre-paids;
  6. Initial escrow payment at closing; and
  7. Other.

Individual charges within each of these major groupings are listed alphabetically. Columns are provided to separate charges owed by the buyer, seller and others, as well as columns for payments before and at closing.

5Clients will likely receive more than one Closing Disclosure. Since the buyer will receive the Closing Disclosure several days before the closing (and likely before the walk-through), the buyer will likely receive a new, adjusted Closing Disclosure at the closing. The CFPB has also mandated that changes in the financial numbers in any amount, must be re-disclosed, even post-closing.

Good luck educating your referral sources!