April 2015, Issue 04
TRID: The New Disclosures
Part 2: The Closing Disclosure
In Part 1 of the "New Disclosures" I laid out some important information, with questions that need to be answered by you in your preparation for the new required Loan Estimate. Just in case you missed it here it is again (Loan Estimate). The rules have changed and effective with new loan applications as of October 3, 2015, you'll need to provide your applicants with 2 new disclosures; the Loan Estimate and the Closing Disclosure. In this installment we'll chat a little more about the new Closing Disclosure.
This new form replaces the final Truth in Lending disclosure and the HUD 1 Settlement Statement, a veritable bedrock of the industry. The replacement of the HUD 1, which has become a staple in home loan settlements, coupled with the new requirement for when the new Closing Disclosure must be provided to the consumer, marks one of the single most significant changes ever made in mortgage lending.
A final, complete and accurate Closing Disclosure must be received by a borrower no later than 3 specific business days prior to the consumer becoming legally obligated under the mortgage contract (usually considered the time they sign the Note and Mortgage/Deed of Trust). Translation, this means the Closing Disclosure must be in their hands for review no less than 3 full specific business days before their loan closing. This also means your final Loan Estimate must have been received by your borrower at least 4 specific business days prior to the closing. You see once the Closing Disclosure is issued you cannot re-issue the Loan Estimate. Minor changes may be made to the Closing Disclosure at the closing, however such changes may not affect the fees or charges.
It is important to note that once the Closing Disclosure is issued, the following circumstances require a new disclosure, which again must be provided no less than 3 specific business days prior consummation:
The final APR becomes inaccurate by changing more than .125% from the last disclosed APR.
The loan product changes causing the prior Closing Disclosure to become inaccurate.
The lender adds a pre-payment penalty feature on the loan.
If any of these circumstances occur, you may need to postpone the settlement to allow sufficient time to prepare and deliver the new Closing Disclosure. Remember the loan may not close until the borrower is in receipt of the corrected disclosure.
This brings us to some significant considerations resulting from this change. Obviously the new form and format present some challenges to lenders, title/closing agents and consumers. One big change is that now the lender is the entity accountable for what is disclosed, explained to, and collected from, a consumer at closing. It is also solely the lender's responsibility to have an accurate Closing Disclosure provided within the prescribed number of specific business days to a consumer before the closing. The lender may have a closing agent do so on their behalf, but regardless, the lender is responsible for the timely delivery and is accountable for the content. This being the case there are some important questions to address:
1. How will you gather/obtain the needed information from the Realtor, Title Insurer and Closing Agent, for the accurate and timely completion and issuance of the Closing Disclosure?
2. When will this process take place? How will it be tracked? By whom?
3. Who will be responsible for updating information in your systems for bona fide changes and the issuance of a revised Loan Estimate and Closing Disclosure when needed?
4. Who will issue the required Rate Lock Loan Estimate (must be issued within 3 general business days of the rate locking)?
5. Who will provide/issue the Closing Disclosure to the borrower? You or the Closing Agent?
6. How will you track any changes after issuance of the Closing Disclosure?
7. How will you handle questions/changes arising at the closing table? Will agents have access to your systems for updates, or will you have someone on call when there is a closing taking place?
You should be reviewing your current systems and operations to determine what changes are needed to meet the new requirements for the information on the form, and prepare for how and when you'll get it. Timing, training and teamwork are paramount to your success.
By the way you may issue a corrected Closing Disclosure after closing when:
Within 30 days of the closing an event in connection with the closing causes the Closing Disclosure to become inaccurate and that inaccuracy results in a change to an amount paid by the buyer or seller.
There is a need to document refunds to the borrower for a tolerance violation (a cure).
There is a need to correct a non-numerical clerical error.
Once all is said and done, you must retain the Closing Disclosure, with all related documentation, for at least 5 years from consummation. If the loan is sold, the new owner/servicer must also retain this information for the balance of the 5 years from the sale date.
As Fred Sanford would have said, "Lizbeth, this is the big one!" The new timing and responsibility requirements create a major cultural change for lenders and how they do business. No more waiting until the last minute to approve and lock loans and then rush the papers to the table. No last minute product, rate or fee changes at the table to "make the deal work." Fees and charges must be within the allowable tolerances set by the law; no exceptions. In essence, you, the lender, are now on the hook as they say, for whatever happens on the loan.
As far as changes go, "this is the big one," and the time to prepare is now!
— Mike Vitali - SVP/Chief Compliance Officer
Mike Vitali is SVP/Chief Compliance Officer for LoanLogics. He has over 40 years of experience in all facets of mortgage lending. Just prior to coming to LoanLogics, he served for more than 12 years as an EVP and Chief Risk Officer for a major national lender. He also served as legislative chair for both the MBA of Greater Philadelphia and MBA of Pennsylvania, and is a member of several task forces dealing with compliance issues for the National MBA.
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This material is provided as a general information service by LoanLogics, Inc. and its applicable subsidiaries and affiliates ("LoanLogics"), and is not intended to provide financial, regulatory or legal advice on any specific matter. The information contained herein reflects the views of LoanLogics and sources reasonably believed by LoanLogics to be reliable as of the date of this publication. LoanLogics does not make any representation or warranty regarding the accuracy of the information contained in this material, and there is no guarantee that any projection, forecast or opinion in this material will be realized. Any links provided from outside sources are subject to expiration or change. © 2015 LoanLogics, Inc. All Rights Reserved.
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