By Glenn M. Wylie, Consumer Protection Officer
Summarized from 2015-16 GenUP/BICUP materials)
Major changes are coming October 3, 2015 to the disclosure and settlement forms used in most residential loan transactions. The former Good Faith Estimate will be replaced by the Loan Estimate and two Closing Disclosure forms, one for the buyer and one for the seller, will replace the HUD-1 settlement statement. The timing of the delivery of these forms/disclosures will also be strictly defined and mandated. While a broker’s responsibilities regarding these matters will not change, it is important that residential brokers are informed regarding these new forms and requirements.
The new TILA-RESPA integrated disclosure rules (TRID rules) were required by the Dodd-Frank Act to eliminate duplicate forms lenders were required to provide under TILA and RESPA. The new integrated disclosure forms, the Loan Estimate and the Closing Disclosures, must be used by lenders in transactions involving federally related mortgage loans governed by RESPA as well as loans for personal, family, or household purposes subject to the Truth in Lending Act (TILA). What triggers the new rules is receipt of a loan application on or after October 3, 2015 for a loan made by an institutional lender and/or to be sold in the secondary market that will be secured by a lien against real property owned by the borrower. Essentially, the new rules will affect most residential transactions involving a mortgage.
Beginning October 3rd, lenders must provide a Loan Estimate (or denial) to prospective borrowers within three (3) business days of loan application so long as the borrower has provided the lender the following information: 1) legal name, 2) statement of gross income, 3) Social Security Number, 4) property address, 5) estimate of property value, and 6) amount of mortgage loan requested. The lender may request other information, but may not require documentary support of the information prior to issuing a Loan Estimate.
Of greater importance to brokers are the new Closing Disclosures, one for the borrower/buyer and the other for the seller. The Closing Disclosure is a statement of final loan terms and closing costs.
TRID rules permit a settlement agent to provide the seller with a separate Closing Disclosure or with a copy of the Buyer/Borrowers’ Closing Disclosure as long as it contains all of the seller’s transaction information. If the settlement agent provides the seller with a separate Disclosure, then the settlement agent must also provide a copy of the Seller Closing Disclosure to the borrowers’ lender, but not to the borrower. While the buyer will not necessarily see the Sellers’ Closing Disclosure, the buyer will have a summary of the sellers’ side of the transaction on page 3 of the buyer’s Closing Disclosure, as with the current HUD-1.
A broker’s obligations concerning the accuracy of settlement statements have not substantially changed with the new forms; however, the information will be found in different locations. The Commission is aware that in some cases, brokers may not have access to the form for the other side of the transaction.
The change that may have the most significant impact is the requirement that the lender must ensure that the borrower receives the completed Borrower Closing Disclosure three (3) business days prior to consummation (defined as the point at which the borrower becomes obligated to the loan). If the Closing Disclosure is delivered to the borrower by any method other than personally, the lender generally must add three more business days for delivery, meaning that it must be sent not later than six business days prior to settlement. For Closing Disclosure purposes, “business day” includes Saturdays, excluding only Sundays and ten federal public holidays. If it is mailed or delivered electronically, the borrower is considered to have received the Closing Disclosure three business days after it is delivered or placed in the mail. However, if the lender has evidence that the borrower received the Closing Disclosure earlier than three business days after it is mailed or delivered, it may rely on that evidence and consider it to be received on that date. For example, if the borrower has consented to receive the Disclosure by email and then acknowledges receipt of the Disclosure by email, the three-day clock starts from the date the borrower acknowledged receipt.
THE 3/6-DAY TIMELINE FOR ADVANCE DELIVERY OF THE BORROWER’S CLOSING DISCLOSURE IS MANDATORY AND GENERALLY CANNOT BE WAIVED. While it is the lender’s responsibility to comply with these requirements, brokers must educate their clients and customers about these timelines. Other important facts to know:
1) The 3/6-day advance delivery applies only to the Borrower’s Closing Disclosure. There is no rule requiring advance delivery of the Seller’s Closing Disclosure. Delivery must be to the borrowers personally, not to a broker acting as a buyer agent.
2) The lender, not the settlement agent, will decide whether to issue one or two separate Closing Disclosures and any other settlement statements. If the lender decides to issue two separate Closing Disclosures, a broker acting as a dual agent should only give each party that party’s Disclosure.
3) Only three changes will require a new borrower Closing Disclosure and a new three-day waiting period:
An increase in the APR,
A change in the loan product, or
The addition of a prepayment penalty.
For any other changes, the lender must still provide a corrected Closing Disclosure with the terms or costs that have changed and ensure that the consumer receives it. However, no additional three-business-day waiting period is required.
While this article has covered the important highlights of the new TRID rules, it is only a cursory treatment of the topic. TRID is a primary focus of the 2015-16 Update Course, both General and BICUP. Brokers involved in residential sales transactions are strongly urged to take the applicable Update Course as soon as possible to be informed and prepared for these significant changes in the residential mortgage loan process.
This article came from the October 2015-Vol46-2 edition of the bulletin.