KIMBERLY A. SALERNO, ESQ.
On Nov. 20, 2013, the Consumer Financial
Protection Bureau (CFPB) released their
“final rule” regarding the integration, simplification
and improvement of consumer
disclosures given in a mortgage transaction
(with an effective date of Aug. 1, 2015).
The changes will affect not only lenders,
but also every third-party service provider
a lender deals with (i.e. settlement agents,
real estate agents, title companies, appraisers)
because if the third-party provider
is not compliant with the regulations, the
lender is held responsible for their mistakes.
What is the CFPB? It was created to watch
over the interests of American consumers in
financial products and services of all kinds.
The “final rule” was enacted to make it easier
for consumers to shop for mortgages and
protect them from costly surprises at their
closing by integrating consumer disclosures.
Many of us in the real estate industry have
been preparing for these changes for several
years…Are you prepared?
So what are the changes? First, let’s take
a look at the five primary changes we can
expect from Lenders:
1. Loan Estimate Form (or LE): This form
will be provided to consumers within three
business days after they submit a loan application.
It replaces the early Truth in Lending
statement and the Good Faith Estimate, and
provides a summary of the key loan terms
and estimated loan and closing costs. Consumers
can use this new form to compare the
costs and features of different loans.
2. Closing Disclosure Form (or CD): This
form integrates the HUD-1 and the “final
TIL”.
There are multiple versions of the form
to account for different transaction types,
such as a refinance and a purchase. There
also is a seller-only form. Because the form
is a mixture of loan information and settlement
costs, communication and cooperation
between the lender and closing agent will be
necessary to complete the Closing Disclosure.
If the settlement agent completes the
Closing Disclosure form, the lender will need
to provide a copy of the Loan Estimate form,
as the information it provides will be necessary
to complete the Closing Disclosure form.
3. Three-day Rule: Consumers will receive
this form three business days before closing
on a loan.
The CFPB conducted more than two years
of extensive research, testing, and review to
find out how to create mortgage disclosures
that do what the law intended them to do:
disclose information in a way that consumers
can understand. A good disclosure helps
consumers know if they want to commit to the loan being offered, and it enables them
to make meaningful comparisons between
loan products for better shopping. If any
changes are needed on the CD during that
three-day period, the customers’ closing
likely will be delayed.
4. Delivery of Forms: Under the rule,
either the creditor or a mortgage broker
acting on their behalf may provide the Loan
Estimate Form to the consumer. However,
in either situation it is the creditor who is
ultimately responsible for complying with
all requirements concerning the information
provided in the form and its provision
to the consumer.
5. Tolerance Levels: The concept of “tolerance
levels” was introduced with the 2010
GFE and HUD-1. Under the CFPB rule, this
concept is carried forward but some of the
items will fall under more stringent tolerance
levels.
Second, how will the changes affect
real estate agents? Realtors will need to
be able to talk their clients through the
new forms. Realtors will also need to be
cognizant of the mandatory three-day notification
for both the Loan Estimate form
and the Closing Disclosure form, since it
will affect the timing of the transaction.
Lastly, realtors will need to be prepared
for clients having to qualify for a mortgage
under the more stringent underwriting
requirements of the Ability-to-Repay/
Qualifying Mortgage rule.
Third, how will the changes affect the
home buyer and seller?
“Taking out a mortgage is one of the
biggest financial decisions a consumer
will ever make. Our new ‘Know Before You
Owe’ mortgage forms improve consumer
understanding, aid comparison shopping,
and help prevent closing table surprises
for consumers,” said CFPB Director Richard
Cordray. “Today’s rule is an important
step toward the consumer having greater
control over the mortgage loan process.”
The CFPB’s whole purpose is to ensure
that consumers get the information they
need to make the financial decisions they
believe are best for themselves and their
families. However, as with any industry
wide change, there will be a learning curve
for all of us in the r eal estate field.
That being said, it is more important
than ever that a lender, realtor, home buyer
or seller use an attorney that focuses their
practice in real estate.
Salerno is the principal in Salerno Law
PC and a licensed agent for Stewart Title
Insurance Co.
Photo Courtesy Salerno Law PC