This article was originally published in Real Estate Agent Magazine Twin Cities, written by Charity Malmberg, Founder and President of Trademark Title
Following one of the most severe financial crisis since the Great Depression, Congress passed and President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act in July 2010. The act created the Consumer Financial Protection Bureau (CFPB). The CFPB is focused on one goal: to protect families from unfair, deceptive and abusive financial practices.
Mortgage transactions are often complex and hard to understand with all the disclosure forms consumers typically receive the day of closing. To simplify this process, the CFPB has issued a final rule that takes effect Aug. 1, 2015. This final rule has many parts to it, but here we will focus in on two key topics the new disclosures and the three-day rule.
The rule replaces the current good faith estimate and early TIL with the loan estimate, which is given three business days after application. The Hud-1 and final TIL will be replaced by the closing disclosure, which is given three business days before closing. All applications received on or after Aug. 1, 2015 must use the new forms. Most consumer mortgage transactions will be required to use the new forms; however, there are a few exceptions.
Those exceptions are:
- Reverse Mortgages.
- Mortgages secured by a mobile home or dwelling not attached.
- No interest second mortgages made for down payment assistance or foreclosure avoidance.
- Loans made by a creditor who makes five or fewer mortgages a year.
- Commercial and all cash transactions are not required by federal law to use a HUD-1 or a closing disclosure.
One of the biggest closing changes you might see taking place is the preparation of the final closing disclosure. Also the lender will decide if they will allow the settlement agent to prepare and deliver the document to the consumer. We have seen a few national lenders, Wells Fargo and Bank of America, announce they will be preparing and delivering the closing disclosure with close communication with the settlement agent. Since the rule holds the lender responsible, I believe we’ll see more lenders doing the same.
Communication with all parties to the transaction has always been important; it will now become crucial in making sure we have all information in a timely manner. We may also see changes in the way homeowner’s association documents are ordered. Most larger management companies take up to 10 days to fill out a form for closing, now with the three-day rule and the lender most likely preparing the final closing disclosure, getting the HOA contact information is going to be vital.
Most of our residential transactions typically had a buyer’s side HUD-1 and seller’s side HUD-1, that will remain the same. There are a few items that may have been missed on the final closing disclosure and may require the use of a uniform supplement page. Title professionals in the area are currently working on this.
Under the new rule, the creditor must provide proof of delivery of the closing disclosure to the consumer at least three business days prior to the date of consummation of the transaction (typically the date the borrower becomes obligated to the loan on the signing of the note). Generally if there are changes between the time the closing disclosure was delivered to the borrower and the closing date, the creditor or settlement agent must provide a new form and the clock starts over with a new three business days.
Changes that require a new closing disclosure and additional three business days include:
- Changes to APR above 1/8 of a percent for most loans (1/4 of a percent for loans with irregular payments or periods.)
- Changes to loan products.
- Addition of a prepayment penalty.
In calculating business days, please note the CFPB has included Saturdays in the rule. Also it is worth mentioning that it is not a 72-hour rule only a day rule. The bureau has made it allowable to send the document by physical or electronic delivery as long as there is evidence of receipt.
What should you do as a REALTOR? First, learn as much as you can about the new rules and forms. Second, meet with lenders you trust to learn more about the new rule and how they plan to handle the preparation and delivery of the closing disclosure. Third, make sure your closing partners are vetted and verified by your lenders and meet with them to discuss the new disclosures and their preparations for the new regulatory environment.
We all know there will be challenges implementing the above final rule, but that’s why it’s important to start communicating with your trusted team of industry professionals now. Preparing together sooner rather than later for the upcoming changes will allow us to make a seamless transition into the new closing process.