Know Before You Close
What is the Consumer Financial Protection Bureau?
For more than 30 years, federal law has required all lenders to provide two disclosure forms to consumers when they apply for a mortgage and two additional short forms before they close on the home loan. These forms were developed by different federal agencies under the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA).
To help simplify matters and avoid the confusing situations consumers have often faced when purchasing or refinancing a home in the past, the Dodd-Frank Act provided for the creation of the Consumer Financial Protection Bureau (CFPB) and charged the bureau with integrating the mortgage loan disclosures under the TILA and RESPA.
On November 20, 2013 the CFPB announced the completion of their 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. These regulations are known as “The Rule”.
What new forms are being introduced?
Any residential loan originated on or after October 3, 2015 will be subject to the new rules and forms set forth by the CFPB. The Rule replaces the Good Faith Estimate (GFE) and early TILA form with the new Loan Estimate. It also replaces the HUD-1 Settlement Statement and final TILA form with the new Closing Disclosure. The introduction of the new disclosure forms requires changes to the systems that produce the closing forms. Our agency has prepared our production systems to provide the new required fee quotes and generate the new closing disclosure forms.
What new terms should you know?Business Days
For the purpose of providing the Closing Disclosure in a real estate transaction, business days include all calendar days except Sundays and the legal public holidays such as: New Year’s Day, Martin Luther King Day, Washington's Birthday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans Day, Thanksgiving Day, and Christmas Day.
The CFPB broadly defines the lender as a creditor. Note: for the purpose of the new rules and to remain consistent with the current rules under the Truth-in-Lending Act, a person or entity that makes five or fewer mortgages in a calendar year is not considered a creditor.
Throughout the rules the borrower is referred to as the consumer. There are also sellers involved in many real estate transactions, which the CFPB also defines as consumers. The focus of the new rules is for the borrower and nearly all of their references to the consumer translate to the borrower.
Consummation is the day the borrower becomes legally obligated under the loan, which would be the date of signing, even if the loan has a rescission period. The concept of a rescission is the borrower accepts the obligation and then later has an opportunity to rescind it.
Five things to know - Real Estate AgentsHere are five items Real Estate Agents will need to know before the new rules and forms take effect October 3, 2015.
>> Be able to explain the new Loan Estimate and Closing Disclosure
>> Timing of closings are impacted by disclosure delivery rules
>> Title fees may need to be adjusted at closing and explained
>> Line numbers have been removed and there are now 7 fee areas
>> Your client will likely receive more than one Closing Disclosure
Five things to know - LendersHere are five items Lenders will need to know before the new rules and forms take effect October 3, 2015.
>> Who will prepare the new Closing Disclosure?
>> Who will deliver the Closing Disclosure?
>> How will settlement agents and lenders communicate data?
>> Who will make changes to the Closing Disclosure?
>> How will settlement agents communicate title and settlement fees?
Five things to know - AttorneysHere are five items Attorneys will need to know before the new rules and forms take effect October 3, 2015.
>> What transactions are affected and exempt?
>> What are the new forms being introduced?
>> How will the timing of a closing be impacted?
>> How will the communication of fees and figures be handled?
>> How are title charges reflected on the new forms?
What transaction types are affected and exempt?The new rules and the new forms apply to all closed-end consumer credit transactions secured by real property, other than reverse mortgages, which include the following types of loans:
- Purchase money
- 25 acres or less
Consumer loans exempted from the new rules and forms are:
- Reverse Mortgages
- Home Equity Lines of Credit (HELOCs)
- Chattel-Dwelling/Mobile Home Only Loans
- Creditors who originate less than 5 loans in a calendar year
The portions of Truth-in-Lending Act (TILA) and Real Estate Settlement Procedures Act (RESPA) governing Reverse Mortgages are not being replaced or deleted. Creditors will be required to issue a TILA disclosure and Good Faith Estimate (GFE) on these types of loans. Settlement agents will be required to use a 2010 HUD-1 Settlement Statement to close these types of loans. Loans in progress (applications submitted prior to October 3, 2015) are not subject to the new rules or the new forms.
Five things to know - Escrow/Settlement AgentsHere are five items Escrow Agents will need to know before the new rules and forms take effect October 3, 2015.
>> What transaction types are affected?
>> What transaction types are exempt?
>> What new forms will be used in transactions?
>> Closing vs. Consummation
>> How can I find out more and be prepared?
Know Before You Close
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