ALTA Approves “Model” Settlement Statements

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paperworkThe more we delve into the intricacies of the new Closing Disclosure (“CD”), the more we recognize that we will not be able to disburse directly from this form when the new rules take effect later this year. A separate document will be needed to prove that receipts and disbursements match in each closing file.

Many commercial closing attorneys have developed their own buyer’s and seller’s closing statement and matching disbursement analysis forms, but many residential closing attorneys have relied primarily on the HUD-1 closing statement. In addition, some closing attorneys have voiced concern that the required treatment of title insurance premiums on the CD (showing the full cost of the loan policy despite the fact that we have a simultaneous issue rate) creates the need for a separate form that will accurately reveal the cost of title insurance.

To answer the need for new forms, the American Land Title Association (ALTA) board adopted four new model settlement statements in May:

  • ALTA Settlement Statement Combined;
  • ALTA Settlement Statement Seller;
  • ALTA Settlement Statement Borrower/Buyer; and
  • ALTA Settlement Statement Cash.

The documents may be downloaded from ALTA in Excel, Word and PDF formats. The closing software companies should also have versions in their systems.

At least one bank has addressed the use of the ALTA model settlement statements. Bank of America was asked whether it would require the use of the ALTA model forms, and it stated in a June 9 memo that it prefers the ALTA model if a closing attorney chooses to use a settlement statement to supplement the CD, but specified that the settlement statement figures must reconcile to the CD and a copy of the settlement statement must be provided to the bank. The bank also stated that all revisions to fees and costs will require bank approval and an amended CD. In other words, closing attorneys will not be allowed to revise fees and costs by simply supplementing the CD with a settlement statement.

We expect other banks may make similar statements as implementation approaches.

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Another Lender Communication to Settlement Agents…

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… And a denial from the CFPB.

newsBank of America answered several frequently asked questions from settlement agents by memo dated June 9.

Significantly, BofA indicated that agents will not be allowed to accept its title or closing orders if they are not registered with Closing Insight™. Because BofA and several other lenders will require Closing Insight™,  South Carolina closing attorneys who have not yet registered should follow this link to do so.

Asked whether BofA will require the use of ALTA model settlement statements, the bank responded that it prefers the ALTA model form if a closing attorney chooses to use a settlement statement to supplement the Closing Disclosure (“CD”), but specified that the settlement statement figures must reconcile to the CD and a copy of the settlement statement must be provided to BofA. The memo also stated that all revised fees and costs will require both bank approval and an amended CD. In other words, fees and costs cannot be revised by simply supplementing the CD with a settlement statement.

ALTA’s settlement statements are available for review and use at this link.

The memo confirmed our thinking that separate CDs will be provided to the buyer and the seller. BofA added that the buyer and seller will not sign the same form nor see the contents of the other party’s CD. Further, BofA will instruct the closing attorney to prepare and deliver the seller’s CD and to provide copies of CDs to the real estate agents.

Finally, the bank clarified its process for making post-disbursement fee modifications. If the closing attorney identifies the need for a change in the numbers reflected on the CD, the attorney must request that the “collaboration session” be reopened in Closing Insight™, and the bank will review the update made by the attorney to determine whether a revised CD is necessary. The party in possession of any excess funds will be responsible for sending the funds to the buyer/borrower, while BofA will prepare and send the revised CD to the buyer/borrower. The closing attorney will be responsible for revising and delivering the seller’s revised CD, if necessary.

cfpb-logoIn related news, on June 3, the CFPB released a fact sheet in response to “much information and mistaken commentary” surrounding perceived closing delays that will be caused by the implementation of the new rules. The CFPB denied that the new CDs will delay closings “for just about everybody.” In response to the belief that any change in the CD will cause a new 3-day review period, the CFPB clearly stated that only the following matters will trigger an additional 3- day wait:

  1. The new APR (annual percentage rate) increases by more than 1/8 of a percent for fixed-rate loans or ¼ of a percent for adjustable loans. A decrease in the APR will not require a new 3-day review if it is based on changes to interest rate or other fees.
  2. A prepayment penalty is added, making it expensive to refinance or sell.
  3. The basic loan product changes, such as a switch from fixed rate to adjustable interest rate or to a loan with interest-only payments.

The following circumstances will not require a new 3-day review, according to the fact sheet:

  1. Unexpected discoveries on a walk-through such as a broken refrigerator or a missing stove, even if they require seller credits to the buyer.
  2. Most changes to payments made at closing, including the amount of the real estate commission, taxes and utilities proration, and the amount paid into escrow.
  3. Typos found at the closing table.

The CFBP’s denial notwithstanding, we are all naturally concerned about other matters that will cause delays during the transition period, particularly the steep learning curve that must be overcome by everyone involved in closings. But we will all work hard to get through the transition period together! We’re predicting that closings will be much smoother by the beginning of 2016.

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!