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New mortgage lending requirements effective August 1, 2015

“TRID is a major game-changer for how we originate and close mortgages.” –Adam Kessler, President, Academy Mortgage

Corp NMLS #3113 MAC0315-1785103440

Contents of this TRID PowerPoint Presentation

Section 1: Introduction

Section 2: Loan Estimate Form (LE)

Section 3: Closing Disclosure Form (CD)

Section 4: The New TRID Waiting Periods

Section 5: TRID and New Home Construction

Section 6: How Will TRID Impact Our Referral Partners?

Section 7: Now/Next

Summary: 3 Keys to TRID Success

“TRID is one of our top three initiatives for 2015, so we’ll be well-prepared for a smooth, successful transition to TRID.”

--Adam Kessler, President, Academy Mortgage

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Section 1: INTRODUCTION • CFPB (Consumer Financial Protection Bureau)

has published revisions to the TILA (Truth-in-Lending Act) and RESPA (Real Estate Settlement Procedures Act) mortgage regulations in response to changes mandated by the Dodd-Frank Act. The revisions are known as the TILA RESPA Integrated Disclosures, or TRID.

• Academy is committed to preparing for these TRID changes and will be a leader in implementing and communicating these changes to our Referral Partners and clients.

“TRID is one of our top three initiatives for 2015, so we’ll be well-prepared for a smooth, successful transition to TRID.”

--Adam Kessler, President, Academy Mortgage

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• The revisions introduce 2 new integrated disclosures: the Loan Estimate form (LE) and the Closing Disclosure form (CD). The CFPB designed these new TRID forms to be easier for Borrowers to read and understand the cost of getting a mortgage loan.

• In addition to the 2 new TRID forms, there are other rule changes to Regulation Z and RESPA.

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Section 2: LOAN ESTIMATE FORM (LE) The current GFE (Good Faith Estimate) and initial TIL (Truth-in-Lending) forms will be combined into and replaced by a new TRID form, the Loan Estimate (LE). Timing and delivery requirements are essentially the same for the LE as they have been for the GFE and TIL.

The new Loan Estimate form has 3 pages: • Page 1 begins with general loan information and includes sections

for Loan Terms, Projected Payments, and Costs at Closing. NOTE: The Borrower will now be provided the Estimated Cash to Close amount, which is not included on the current GFE! 5

• Page 2 is a breakdown of Loan Costs, Other Costs, and a summary entitled Calculating Cash to Close. What’s different on this page is how the costs are broken down. The 800, 900, etc., series of fees no longer exists.

• Loan Costs include Origination Charges, Services You Cannot Shop For, and Services You Can Shop For.

• Other Costs include Taxes, Prepaids, Initial Escrow Payment, and Other.

• Calculating Cash to Close includes a summary of all the charges and credits.

• NOTE: “Services You Cannot Shop For” will now be subject to zero tolerance, where in the past these charges fell into the 10% tolerance category.

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• Page 3 has the Loan Officer’s contact and license information, a cost com-parison of 5 years’ total cost, the APR, and Total Interest Percentage or TIP.

• The Total Interest Percentage is entirely new and discloses the total amount of interest that the Borrower will pay over the loan term expressed as a percentage of the loan amount. To find TIP, take the interest paid on the loan and divide it by the loan amount. FOR EXAMPLE: If the Borrower’s loan amount is $100,000, and they’ll pay $50,000 in interest over the life of the loan, the Total Interest Percentage would be 50%.

• Page 3 also includes other loan considerations that you’re familiar with, like assumption, late payment, and servicing.

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Section 3: CLOSING DISCLOSURE FORM (CD) The current HUD‐1 and final TIL forms will be replaced by a new single TRID form, the 5-page Closing Disclosure (CD). • Currently, the mortgage industry is

accustomed to the Lender providing closing details to a Settlement Agent, who then prepares the HUD-1, while the Lender prepares the final TIL.

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• However, as of August 1, there will be only one document (the CD), so early collaboration between the Lender and the Settlement Agent is critical in order to have a timely and seamless transaction.

• The new TRID rules make the Lender responsible for both the information

on the CD as well as delivery of the CD to the Borrower. So Academy Mortgage has made the decision to take on both of these responsibilities instead of relying on the Settlement Agent.

The new Closing Disclosure form has 5 pages: • Page 1 lists the loan terms, payments, and a summary of the closing costs.

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• Page 2 breaks out the closing costs in detail and identifies who is paying for the charges (and also “when” if charges are paid before closing).

• Page 3 calculates the cash to close and provides a summary of the transaction that looks similar to the first page of the current HUD-1.

• Page 4 discloses loan features such as assumption, late payments, and escrow account information. If applicable, there will be details that describe the terms for an adjustable-rate or adjustable-payment mortgage.

• Page 5 lists loan calculations similar to the current TIL form, including the

new TIP calculation. It also provides other disclosures, as well as contact information for the Lender, Real Estate Professionals, and Settlement Agent.

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Section 4: THE NEW TRID WAITING PERIODS Avoid anxiety, surprises, and delays by understanding the new waiting period requirements for the new Closing Disclosure (CD). • Currently, the Borrower might not see the HUD-1 form until they sit down at

the closing table. • Under TRID, the CD must be in the Borrower’s hands 3 business days

before closing. And if it needs to be mailed, you will need to plan on 3 additional business days for delivery. (A “business day” is defined as all calendar days excluding Sundays and federal holidays.)

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• When TRID is implemented on August 1, careful planning, coordination, and communication will be critical.

• The purchase contract should be drafted keeping these extra days in mind so that closing dates can be met.

• Clear communication between Borrowers, Sellers, Real Estate Professionals, the Lender, and Settlement Agent will minimize potential surprises or delays.

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Section 5: TRID AND NEW HOME CONSTRUCTION TRID presents unique challenges with new home construction. Careful planning and communication will help avoid surprises and delays. • As previously noted, the CD will replace the current HUD-1

settlement statement and final TIL disclosure that the industry is familiar with using.

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• Today, most Lenders and Settlement Agents are able to accommodate last‐minute change orders that result in changes to the loan amount, closing costs and/or sales price. Starting August 1, this flexibility will be very limited. Once the Borrower has been provided the Closing Disclosure, there are restrictions as to what can be changed.

• Planning and communication between Builders, Realtors, Lenders, Settlement Agents, and Borrowers will be critical in order to meet closing deadlines and avoid potential delays that could result in additional costs to Builders in the form of construction loan extension fees, penalties, or per‐diem interest charges.

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Section 6: HOW WILL TRID IMPACT OUR REFERRAL PARTNERS? Here are 6 key TRID events that will impact our Referral Partners, followed by Academy’s recommended best practices.

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>> Event 1: Meeting the contract settlement deadline. Real Estate Purchase Contracts do not currently include the Closing Disclosure (CD) delivery as a key deadline. Contract settlement deadlines could be delayed to provide sufficient time for the CD to be delivered and reviewed in conformance with new TILA guidelines. >> Recommended best practices: Upfront communication between the Realtor drafting the contract and the Buyer is essential. Discussions should include the CD when establishing other key deadlines, such as due diligence, appraisal, financing, and settlement. An addendum to the contract may provide awareness to both Buyer and Seller that differentiate competing offers.

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>> Event 2: The CD is NOT a settlement statement. The CD document by itself contains only signature lines for the Borrowers and a disclaimer that states that signing the form only acknowledges receiving the form. Additionally, the Borrowers do not have to accept the loan because they have signed the CD. >> Recommended best practices: Academy is working with industry groups to come up with a solution that will replace the HUD-1 Settlement Statement. The HUD-1 can’t be used on transactions with an application date on or after August 1, 2015, so it will be necessary to have a document in the settlement package that authorizes settlement and disbursement from the title company.

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>> Event 3: Meeting the CD delivery deadline. Delivery waiting periods for the CD state that the CD must be received by the Borrowers at least 3 business days prior to consummation. From a Lender’s perspective, this rule is really 6 business days prior to settlement because if the Lender cannot deliver and acknowledge receipt electronically by the time the CD is ready for delivery, then 3 additional days are required for mail delivery. Face-to-face delivery with a signature from the Borrowers 3 days prior to settlement would satisfy the rule’s intent. >> Recommended best practices: E‐CONSENT! Referral Partners can help the Lender by reinforcing the importance of e-consent to their clients. It is not typical in today’s high-production environments to meet face-to-face with the Borrowers prior to settlement. Although this is an option, it is a potential inconvenience from any perspective. Academy has an e‐consent acquisition and fulfillment process to deliver the CD. Academy will effectively communicate with Partners to ensure settlement deadlines are not jeopardized due to delays in delivering the CD.

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>> Event 4: Double closings—situations where there are two separate trans‐actions occurring at the same time. This is typically the Buyer and Seller, who have transactions occurring at the same time, possibly with 2 different Lenders involved. One Lender’s performance in delivering the CD can impact the other, and vice versa. If both Lenders deliver on time, there should be no impact. >> Recommended best practices: Communication and expectations are the keys to success here. Knowledge of where both transactions are at is critical to knowing how to plan moving arrangements, setting up utilities, coordinating wire transfers, obtaining keys to a new home, etc. Keep in mind that a Lender can’t control the actions of another Lender, so delays are absolutely possible. Mentally preparing for all of the moving pieces will allow you to succeed more than you will struggle.

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>> Event 5: A Buyer’s last‐minute change order requests on new construction increases the settlement charges. If the change causes an increase in APR beyond 0.125% or a change in the Borrower’s loan product, then the 3-day waiting period (and potential 3-day delivery period) prior to settlement starts over. >> Recommended best practices: TRID guidelines specify that a Lender can no longer re-disclose a revised Loan Estimate (LE) once a CD has been given to the Borrowers. If changes occur after the CD is provided, then delays in settlement can occur. Best practice may be to have a change order deadline if one does not already exist.

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>> Event 6: Borrowers may not understand the CD. The CD is now delivered to Borrowers ahead of settlement. The challenge with this is that many Borrowers may not understand all of the information provided on the 5-page CD form without the assistance of a Settlement Agent, who (prior to TRID) would have been at the table with them. >> Recommended best practices: Realtors and Loan Officers must prepare themselves for questions related to the CD, because usually they are the only ones the clients know or interact with prior to settlement. Realtors and Loan Officers can also prepare their clients by communicating that the CD document is coming. They can offer to meet with the clients if they have questions or concerns about the CD.

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Section 7: NOW/NEXT. Here’s a quick comparison of how Academy originates and closes mortgages NOW with how we’ll do it NEXT, when TRID starts on August 1: Initial Disclosures • NOW: The GFE and the initial TILA disclosures • NEXT: The GFE and initial TILA forms will be combined into one new form,

called the Loan Estimate (LE).

Closing Disclosures • NOW: The HUD‐1 Settlement Statement and final TILA disclosure • NEXT: The HUD-1 and final TILA forms will be combined into one new form,

called the Closing Disclosure (CD).

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“Application” definition NOW: 7 elements 1. Consumer’s name 2. Consumer’s income 3. Consumer’s Social Security number 4. Property address 5. Estimated value of the property 6. Mortgage loan amount sought 7. Interest rate (Lender’s Catch-All)

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NEXT: 6 elements 1. Consumer’s name 2. Consumer’s income 3. Consumer’s Social Security number 4. Property address 5. Estimated value of the property 6. Mortgage loan amount sought

Fee tolerances for required services that the Borrower can NOT shop for NOW: The fee tolerances are 10% for required services that the Borrower can NOT shop for (appraisal, credit report, tax service, etc.). NEXT: The fee tolerances are 0% for required services that the Borrower can NOT shop for (appraisal, credit report, tax service, etc.).

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Preparation of the settlement statement NOW: The Settlement Agent prepares the HUD-1; the Lender (Academy) prepares the final TIL form. NEXT: The Lender (Academy) will prepare the Closing Disclosure form. Delivery of the closing settlement statement NOW: The HUD-1 form can be provided at closing. NEXT: The CD must be received by the Borrower at least 3 business days before loan settlement.

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Summary: 3 KEYS TO TRID SUCCESS 1. Know the TRID terms, rules, and challenges: LE, CD, “application,”

waiting periods, tolerances, deadlines, change orders, etc.

2. Know Academy’s recommended best practices.

3. Careful, upfront planning and ongoing communication and coordination among ALL PARTIES are essential to our successful implementation of TRID!

Thank you!

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“TRID is a major game‐changer for how we originate and close mortgages.” –Adam Kessler, President, Academy Mortgage

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