TRIDTILA/RESPA Integrated

DisclosuresAre you prepared?

The NewLoan Estimate

andClosing Disclosure

The 2007 Housing MarketThe Climate• Interest rates were low and economic confidence was

high• Homeownership was viewed as an entitlement, not a

privilege• Buyers were extremely eager to buy a home

• Paying significantly more than the appraised value• Entering into exotic loans, with risky and unstable features• Qualifying for loans that did not require full disclosure of

income and/or assets

The lender’s role in 2007Mortgage Bankers were faced with 2 options:• Be conservative (and lose business to other lenders

willing to do riskier loans) OR• Be competitive and profitable

Predatory lending and non-disclosure of terms ran rampant and virtually unchecked

How often have you heard a client say…“No one told me…”• The payment could go up• The balance would increase• The rate was adjustable• There was a pre-payment penalty

The need for changeUnder the Dodd-Frank Act, the Consumer Financial Protection Bureau (CFPB) was directed to make disclosures:• Easier to read• Easier to understand

Why the change?The current disclosure forms were developed under 2 different federal agencies:• The Truth in Lending Act (TILA)• The Real Estate Settlement Procedures Ave (RESPA)

So what’s wrong with them?• The information overlaps and the language is

inconsistent• Consumers find them confusing• Lenders and settlement agents find them burdensome to

provide and explain

A new dawn…The new TRID forms will go into effect for all applications taken August 1, 2015• Borrower is not required to pay any fees until an intent

to proceed is indicated• Any written estimates must have a “terms and costs may

change” disclaimer• Prohibits submission of borrower’s documentation as a

condition of receiving the new Loan Estimate (LE)

Who does this apply to?The majority of closed-end residential mortgages must use the new disclosure forms

Who can still use the current disclosures?• Home equity lines of credit (HELOCs)• Reverse mortgages• Mortgages secured by a mobile home or land

“Your Home Loan Toolkit, A Step-by-Step Guide”Will replace the “Shopping For Your Home Loan” booklet• Lenders are required to provide this to the borrower• More comprehensive and detailed• Covers all aspects of the home-buying and mortgage

process

The Loan Estimate (LE)Designed to assist consumers in understanding:• Key terms of the loan• Costs• Potential risks of the mortgage they are applying for

The Loan Estimate (LE)The Lender must provide the LE to the consumer no later than 3 business days of the receipt of an application

An application is considered received when the consumer has provided the following:

• Name• Income• Social Security number to obtain a credit report• Address of the property• Estimated value of the property• Loan amount requested

The Loan Estimate (LE)Lenders may only revise or correct the LE when there is a changed circumstance

The LE must be re-disclosed within 3 business days of the change, but no later than 7 business days before consummation (closing)

The Loan Estimate (LE)Features of the LE• Contains all terms of

the note• Calculates current

payments (and any future adjustments)

• Defines the escrow account

• Estimates closing costs AND estimated amount needed at closing

The Loan Estimate (LE)

The current GFE does not show:• How much the borrower will need at closing

Only reflects the total cost of all finance charges, even if they are financed into the loan (i.e. VA funding fee or FHA UFMIP)

• Funds needed for a down payment

The Loan Estimate (LE)The creditor is bound by the LE (absent a changed circumstance), and the fees can only change within certain “tolerances” or “variances”Zero Tolerance - fees that cannot change• Charges by a creditor, broker, or their affiliates• Charges for non-affiliate services for which the borrower

may not shop• Transfer taxes10 % Tolerance – allows up to a 10% variance from the original quote• 3rd party charges (by non-affiliates) for which the

borrower may shopNo Tolerance – fees can change without limits• Per diem interest• Hazard insurance & taxes (i.e. escrow)• 3rd party charges not on the creditor’s list

The Loan Estimate (LE)

The new LE clearly shows the borrower:• The payment and/or rate is adjustable AND• The worse case scenario of what could happen to the

monthly payment, and when this may occur

The Closing Disclosure (CD)Features of the CD• Page 1 – mirrors page 1 of the LE

The Closing Disclosure (CD)Features of the CD• Page 2 – itemization of costs

The Closing Disclosure (CD)Features of the CD• Page 3 – calculation of costs and

summary of the transaction

The Closing Disclosure (CD)Features of the CD• Page 4 – defines the terms of the

loan disclosures, escrow account, and any adjustable payments or interest rates

The Closing Disclosure (CD)Features of the CD• Page 5 – calculation of payments

and finance charges, APR, additional disclosures, and contact information

The Closing Disclosure (CD) – Buyer’s Side

Designed to assist consumers in understanding all costs incurred

• Must be given 3 days before closing• Must provide a detailed summary of the transaction• Provided by the lender or settlement agent, however the lender

is ultimately responsible• If it becomes inaccurate after it has been provided, a corrected

CD must be provided at or before closing• The borrower has a right to view any changes, at least 1 business

day before closing

The Closing Disclosure (CD) – Buyer’s Side

The buyer must be re-disclosed a new CD AND wait an additional 3 days to close if:

• The loan product changes• The APR changes over the tolerance level

Fixed rate loans - 0.125%ARMs loans – 0.25%

• A pre-payment penalty is added

The Closing Disclosure (CD) – Seller’s Side

The settlement agent is responsible for providing the CD to sellers

• Must reflect actual terms of the seller’s transactionWith or without buyer side information

• A separate disclosure that only reflects the seller’s side may be provided

This must be provided to the lender• Must be provided no later than the day of closing

Are you prepared?What should you do?• Communicate with your clients

These forms are designed to provide clarity• Prepare them for the waiting period and advise them to

submit all documentation as soon as possible• Know who your client’s lender is and the terms of their

loan• Communicate with both the lender and the settlement

agent

Atlantic Bay Mortgage is ready!Timely closings will ALWAYS be our priority• ABMG closes 99.7% of our purchase transactions by the

contract dateThis includes short sales and bank-owned properties that require a HUD-1 several days in advance

• No matter what changes may occur, ABMG will always be ready to assist you and your clients

Want to learn more?

Contact an Atlantic Bay mortgage banker today!