August 1st Settlement form changes
As many in the Real Estate industry know, there are some big changes coming to the loan and settlement forms. We recently had a lunch and learn at the Pineywoods Realty office with a guest speaker from First American Title. The training session covered the basics of the new process, an overview of the new closing statement/estimates, as well as some benefits and challenges we may encounter once these new regulations are put in place.
Below we will run through an overview of the presentation, highlighting some of the important changes and what to expect once this new process has been implemented.
Basics of the Integrated Mortgage Disclosures Rule :
What – Changes to the Loan and Settlement Disclosure forms and processes are coming.
When – The changes will be effective for transactions where a loan application is taken by a lender on or after August 1, 2015.
Why – Because the Dodd-Frank Act of 2010 mandates the combination of the Truth in Lending Act (TILA) loan disclosures with the Real Estate Settlement Procedures Act (RESPA) Good Faith Estimate and HUD-1 Settlement Statement disclosures.
How – The Consumer Financial Protection Bureau (CFPB), an entity created by the Dodd Frank Act, issued a new TILA final regulation that, among other things, created two new forms (each with many variations) and new 3 business day delivery requirements.
Loan Estimate – 3 business days after application:
3 Business Day Delivery Requirement – The creditor must deliver or place the Loan Estimate in the mail no later than the 3rd “business day” after the creditor has received the loan application
Business Day – For purposes of the Loan Estimate “business day” is defined as a day on which the creditor’s offices are open to the public for carrying on substantially all of its business functions.
Application – “Application” is defined as submission of a consumer’s financial information for the purposes of obtaining an extension of credit. For purposes of the Loan Estimate an “application” consists of the submission of: 1) name; 2) income; 3) social security number; 4) property address; 5) estimate of the value of the property; and 6) mortgage loan amount sought.
Mailing – When the Loan Estimate is mailed, receipt is presumed 3 business days after it is mailed.
Delivery Methods – Some of the ways the Loan Estimate may be delivered are by: regular mail, e- mail, overnight delivery service and personal delivery. If the Loan Estimate is actually received earlier than the 3 day presumed receipt (i.e. if an e-mail was received and opened by the consumer the same day it was sent), the 3 business day presumed receipt date would be shortened. However, there are specific requirements that must be met in these situations.
Changed Circumstances – A revised Loan Estimate may be sent when certain “changed circumstances” occur.
Closing Disclosure – 3 business days before consummation:
3 Business Day Review Period – The consumer must receive the Closing Disclosure 3 “business days” before “consummation.”
Business Day – For purposes of the Closing Disclosure “business day” is defined as every day except Sundays and Federal legal holidays.
Consummation – “Consummation” is defined as the time that a consumer becomes contractually obligated on a credit transaction. State law governs when this is.
Mailing – When the Closing Disclosure is mailed, receipt is presumed 3 business days after the Closing Disclosure is mailed.
Delivery Methods – some of the ways the Closing Disclosure may be delivered are by: regular mail, e-mail, overnight delivery service and personal delivery. If the Closing Disclosure is actually received earlier than the 3 day presumed receipt (i.e. if an e-mail was received and opened by the consumer the same day it was sent), the 3 business day review period may begin to run at the time of the earlier receipt. However, there are specific requirements that must be met in these situations.
Who will issue the forms?
- Loan Estimate – Lender or Mortgage Broker
- Closing Disclosure – Lender or Settlement Agent (Escrow) – if the Lender delegates ?responsibility to the Settlement Agent (Escrow)
Enforcement – The CFPB can levy substantial penalties so Lenders will be very cautious:
- Up to $5,000 per day for any violation of a law, rule, or final order or condition imposed ?in writing by the Bureau;
- Up to $25,000 per day for any person that recklessly engages in a violation of a ?Federal consumer financial law; and
- Up to $1,000,000 per day for any person who knowingly violates a Federal consumer ?financial law
Impact on Real Estate Professionals
- Closings may take longer because of 3 business day review periods.
- You’ll be seeing different forms for most transactions.
- Your contact information and license number must appear on the Closing Disclosure form ?(see page 5 of the Closing Disclosure form)
- Your clients may receive multiple Loan Estimates due to:
- ? “Changed circumstances” – certain defined circumstances that cause the estimated charges to increase by more than the variance allowed under the Final Rule;
- ? Multiple applications with different lenders; or
- ? Multiple applications for different loan products with the same lender
- Your clients may receive multiple Closing Disclosures:
- ? Some with a 3 day business day waiting period and some without; and
- Some before closing and some after
Along with these new changes in timeframes, comes a new closing statement! Below are screenshots of a sample closing statement for a fixed loan. This closing statement will not be used for commercial closings (still use HUD-1 form).
The new process will apply to any loan application that is made on or after August 1st 2015. While these changes are sure to take a little getting used to, overall they are positive changes. These changes will help smooth out the closing process, and help alleviate a lot of issues that come about with rushing last minute closings. The new settlement forms are easy to navigate, and should be much easier to explain to clients on both selling and buying side of the transaction.
If you missed the lunch and learn and would like to learn more about the changes coming August 1st, contact us for more info!
*Info sourced from First American Title company