New Disclosure Forms to Replace Standard HUD-1 Closing Statement

Change is on the way. The standard HUD-1 closing statement that has been used for decades is scheduled to be replaced with two new “Closing Disclosure” forms effective August 1, 2015.

The Dodd-Frank Act consolidated multiple agencies’ consumer protection responsibilities in the Consumer Financial Protection Bureau (CFPB) and gave the CFPB broad authority to develop and implement rules.

In the past, lenders of “federally related mortgage loans” have been required to provide borrowers with:

(1) A Good Faith Estimate (GFE) and early Truth-in-Lending (TIL) disclosure, and

(2) A final Truth-in-Lending disclosure and HUD-1 at closing.

One of the direct charges to the CFPB under Dodd-Frank was to consolidate these disclosures to ease compliance burdens on lenders.

The CFPB studied the disclosure requirements, conducted surveys, drafted proposed rules and invited public comment for more than two years, before announcing its new “Know Before You Owe” program in November 2013.  Under this new program, effective August 1, 2015, lenders must instead use the new “Loan Estimate” disclosure that combines the former GFE and TIL disclosures, and lenders/settlement agents must start using the new “Closing Disclosure” forms in lieu of the current HUD-1.

There are two Closing Disclosure forms: one is a two-page form containing a transaction summary reflecting only seller-paid expenses and amounts due to and from the seller, while the second Closing Disclosure is five pages and contains information about the loan terms, borrower expenses, by whom those items are paid, and a summary of monies due to and from both the buyer and the seller.

Brokers engaged in residential sales should become familiar with the new Closing Disclosures. One major issue that may prove to be problematic for brokers, at least initially, may be lender compliance. Lenders are required to provide the Closing Disclosure to the buyer at least three business days prior to settlement. Failure to comply requires postponement of the settlement date, so it is important for brokers to know these deadlines and warn clients of potential pitfalls with missed deadlines at the beginning of the agency relationship, and repeat those warnings throughout the transaction.

The new Loan Estimate and Closing Disclosure forms, the rules governing each, a broker’s responsibilities as to each form and how the new forms may affect closing procedures will be one of the primary topics of the 2015-2016 General Update course.

This article came from the February 2015-Vol45-3 edition of the bulletin.