We are moving into a different world come October 1, 2015, when the 1000 pages of new Consumer Finance Protection Bureau Rules (CPFB) for closed-end mortgages go into effect, with the usual host of acronyms and changed definitions to go along with it. We haven’t completed the anagram using the initials (CPFB/TILA-RESPA/TRID), but we’re working on it.
This month, we call out several important things you should keep in mind as we enter this brave new world of the new TILA-RESPA Integrated Disclosures.
Beginning at the end…Don’t expect to be able to make last minute changes at closing or within 3 days of closing. Doing so will very likely delay the process, which requires new delivery deadlines and clearly make lenders responsible for the contents of the new documents.
- The new rules combine the four familiar forms currently being used into two new forms, both of which will be prepared by the lenders, who are now responsible for the document contents.
- The Loan Estimate Form (LE) combines and replaces the Good Faith Estimate and initial Truth-in-Lending Disclosure. It must be provided 3 business days after receipt of a loan application and contains information about the key features, costs and risks of the mortgage loan applied for.
- The new Closing Disclosure (CD) replaces the HUD-1 Settlement Statement and the final Truth-in-Lending Disclosure. It must be delivered to the buyer/consumer three days prior to the closing date.
Keep in mind changed timelines and responsibilities. They will impact your relationships and ability to assist and to communicate with your clients, lenders and closing agents. This is particularly important for scheduling in situations where two or more transactions are involved within a close timeframe. Communication will be paramount.
Ready your documents a full week before closing. To meet the 3 day requirement, the American Land Title Association (ALTA) is recommending the real estate agents have all closing documents ready a full week before the closing date. Some lenders are signaling that they will require longer lead times.
Advance copies of the CD are a thing of the past.
- Lenders will likely send the CD to the closing agent at the same time it is sent to the buyer/consumer.
- The closing agent will not be permitted to send a copy to real estate agents. Buyer’s agents will need to obtain a copy from the borrower.
The Seller’s CD: Lender’s won’t include the” seller’s side” of the transaction in their CD. This will be prepared by the closing agent, who may prepare a separate disclosure.
Avoid Triggering a New 3-day Waiting Period. Triggers include:
- Changes which cause a change to the Annual Percentage Rate, the buyer changes loan product or a prepayment penalty is added.
- Changes and adjustments affecting the value of the property (as determined by the lender) which trigger additional disclosure and review periods under the Equal Credit Opportunity Act (ECOA) controlling the delivery of the appraisals.
- To reduce the chances of delaying closing, consider two pre-settlement inspections, one a week or so prior to closing and a second on the day of closing.
Title insurance: The CD refers to Owner’s Title Insurance as “optional” in some circumstances. However, the buyer/consumer requires the protections that owner’s title insurance provides.
Contract Terms: The new TRID rules may affect the contract terms that you help negotiate for either the buyer or the seller.
- Closing in 30 days may no longer be realistic.
- If your contract form contains a “set” number of days for the closing to occur, then a minimum of 15 additional days may be advisable.
- If your contract form requires you to fill in a specific date, take additional time into consideration. It’s important for you to communicate with the lender and the closing agent to determine a realistic timeframe for closings under these new rules.
Learn more: Become familiar with the CD so that you can answer buyer and seller questions. The Consumer Financial Protection Bureau has done a nice job with their Compliance Guide and Guide to Forms.
While everyone gets familiar with these new regulations, communications will be even more important than ever. Buyers need to understand that changes require immediate responses to the lender. As an agent or attorney, make sure you have the systems in place to communicate with lenders and the closing agents after the contract is signed. Communication will be key to avoid closing delays.
As the new program takes effect, Jeffrey S. Apell, Erwin D. Apell, Melanie Levan and Dan Posternock are more than happy to discuss these new Rules and any other real estate or legal matters with you.
*TILA stands for the Truth In Lending Act, and RESPA stands for the Real Estate Settlement Procedures Act.
Resources used to develop these tips include: The Consumer Financial Protection Bureau Integrated Rule Disclosure Rule Implementation, Complying with the New TILA-RESPA Integrated Forms and Turnkey Title’s Top 10 Things Real Estate Agents should know about the New TILA-RESPA Integrated Disclosures.