On November 20, 2013 the Consumer Financial Protection Bureau issued the TILA RESPA Integrated Disclosure Rule that will become effective on August 1, 2015. As a result of the new Rule, both Buyers and Sellers will experience several changes to the closing process as we know it. How will the process change and how will it affect your closing?
Goals of the New Rule
One of the main goals of the new Rule is to increase the consumer’s understanding of the lending process. To this end, the Rule provides that specific loan information must be disclosed to the consumer within a specified timeframe after the loan application is made. The lender is now required to provide the consumer with a summary of key loan terms and estimates of costs via the ‘The Loan Estimate’ document which is intended to provide the consumer a better understanding of the proposed financing terms and allow for more effective comparison shopping.
Another objective is to simplify the mortgage disclosure forms. Under the new Rule, several documents have been combined into two more user friendly forms. The new forms use clearer language and highlighting to help the consumer better understand complicated mortgage terms and draw attention to the key terms of the loan agreement. The new forms also provide more detailed information about real estate taxes and insurance escrows as well as indicating how these amounts can fluctuate over the life of the loan.
One more goal of the new Rule is to aid the consumer in comparison shopping. The forms clearly detail the proposed loan amount, interest rate, and monthly principal and interest payment. The forms also provide other important information about prepayment penalties and mortgage insurance. This information will be found on the first page of the document to allow a consumer the opportunity to do an easy side-by-side comparison of multiple loans.
Finally, the new Rule seeks to eliminate unwelcome surprises at closing by requiring lenders to provide the consumer with the new closing form known as The Closing Disclosure no less than three (3) business days prior to the close date. Borrowers will find that the new form is transaction specific and provides a clear and detailed accounting of the transaction for the Borrower and lender to review well before the date of closing.
As briefly mentioned above, under the new Rule we will be introduced to two new forms: The Loan Estimate and The Closing Disclosure. The Loan Estimate replaces the preliminary Truth in Lending Disclosure and the Lender’s Good Faith Estimate. The Closing Disclosure replaces the final Truth in Lending Disclosure and the HUD-1 Settlement Statement. These forms will be used for closed-end consumer mortgage loans applied for on or after August 1, 2015. The old forms can still be used for loans applied for prior to August 1st and other types of loans such as home equity lines of credit, reverse mortgages, mortgages secured by mobile homes or loans given by a creditor that makes five or fewer mortgage loans per year.
The Loan Estimate must be provided to a consumer within three (3) business days after that loan application is made. Thereafter, if any changes result in an inaccurate APR, loan product type or if a prepayment penalty is added, the lender must re-disclose those changes to the consumer within 3 business days of that change and a three (3) day waiting period is initiated. The Loan Estimate must also be provided to the consumer no less than seven (7) business days prior to closing. In some limited cases a waiver of the waiting period may be permitted.
The Closing Disclosure must be received by the Borrower three (3) business days before the closing. Seller is allowed to receive the document the same date of the closing. The Closing Disclosure is transaction specific, meaning that the content of the Disclosure is added and removed based on each individual transaction. The first page of the five page document is the same as The Loan Estimate and contains sections of information about Loan Terms, Projected Payments and Costs at Closing. The second page is similar to the current HUD-1 in that it provides a detailed breakdown of the costs into two categories – Loan Costs and Other Costs. Page Three provides a calculation of cash needed to close along with a comparison between The Loan Estimate and The Closing Disclosure. This will allow the consumer to see what has changed since the time of The Loan Estimate. Also on this page is a Summary of Transactions for both the Buyer and Seller. The Fourth Page provides additional information about the consumer’s specific loan product, including information on Assumability, Late Payments, Negative Amortization, Partial Payments and Escrows. The last page gives information about the Total of Payments, Annual Percentage Rate “APR”, and Total Interest Percentage “TIP.” It also has a section for Contact Information for the parties involved and signatures lines for the Loan Applicants.
What to Expect as a Buyer / Seller
If all goes as planned, Buyers can eventually expect to receive concise, easy to understand information starting at the very beginning of the loan process through the date of closing. As with any major change, there will be a learning curve as lenders, title companies, attorneys and consumers get acquainted with the new procedures and forms. Buyers and Sellers may experience some service hiccups as the providers work to implement the new rules. Buyers and Sellers also need to be conscious of the possibility that a mandatory waiting period may be required. If initiated, these delays will likely result in some logistical problems for both Buyers and Sellers.
What Morreale & Brady is doing to Prepare?
In preparation of August 1, 2015 there is a lot of buzz about the new forms, but there is also much activity behind the scenes as lenders, title companies, vendors and attorneys prepare for compliance.
Morreale & Brady is already providing training to its attorneys and staff on the new forms and regulations to ensure that our entire team is familiar with the new procedures and requirements well before they take effect on August 1st. We are also working closely with our title partners and IT professionals to ensure that all technology is updated and in compliance by that date as well.
In addition to training and familiarizing ourselves with the new forms, we are also implementing procedures to ensure that our clients’ personally identifiable information remains protected. This includes the use of password protected computers, locked desks and file storage as well as the shredding of hardcopies of documents containing any client related information.
Protection of our clients’ personally identifiable information has always been of upmost importance to Morreale & Brady. In light of the upcoming changes, we are familiarizing ourselves with the new procedures, working to update technology and best practices to ensure that our clients’ personally identifiable information remains secure at all times.
The attorneys and staff at Morreale & Brady dedicated to providing our clients with the best service and representation possible. To this end, we assure you that we are taking all steps necessary to be prepared to guide and advise our clients through the upcoming changes. We also pledge to continue to implement the most up to date best practices to ensure our clients’ personally identifiable information will always be protected. We look forward to working with all of our clients during this exciting time and encourage you to reach out to speak to one of our attorneys with any question or concerns you may have regarding the implementation of the Rule.