Dodd-Frank UpdateTRID and Closings

Eugene Marconi

Legal Counsel

Berkshire Hathaway HomeServices New England Properties

Consumer Financial Protection Bureau“CFPB”

Federal agency overseeing the Truth-in-Lending and Real Estate Settlement Procedures Acts.

Oversight is extensive and includes other financial products outside of mortgage lending.

Began operations 2012

Not a “Regulatory Agency”

Enforcer that “eats what it kills”

CFPB

Primary Responsibility and Authority isderived from Dodd/Frank legislation:

“Enforcing Federal Consumer Financial Laws”

Includes Truth-in-Lending and RESPA enforcement

Pricing & costs must be clear and understandable

Risks fully disclosed

Nothing hidden or buried in fine print

Associated relationships fully disclosed

Clear and Concise

CFPB Oversight

Any lender engaged in offering financial products to “consumers”

BanksCredit UnionsMortgage Banking CompaniesFinance Companies

Is subject to CFPB oversight

“TRID”

October 3, 2015

TILA-RESPA Integrated Disclosure Rule

“Consummation Date”: This is the date consumer becomes obligated on the Note. For real estate sales this is known as the Closing Date.

“Consumer”: Replaces “Borrower”

New Terms/Definitions

New forms will be used for all applications taken on or after October 3, 2015.

All applications taken prior to October 3, 2015 will be governed by the old rule and documents.

New format for the Loan Estimate and Closing Disclosure makes it easier for the consumer to compare initial information with final terms and costs.

CFPB Mandated Changes 2015

TRID DISCLOSURE REGIME

Required for all closed-end consumer credit transactions secured by real property.

Not required for purchase money, reverse mortgage, HELOC, refinance, 25 acres or less vacant land, mobile home, or timeshare.

NOTE: Creditors who originate less than five loans in a calendar year are exempt.

The new Truth-in-Lending/RESPA rule exempts “All Cash” transactions

For an “All Cash” transaction it is the responsibility of the closing attorney to ensure all regulatory requirements have been satisfied.

All Cash Transactions

For Applications on or after October 3, 2015:

Good Faith Estimate (GFE) is eliminated

Initial Federal Truth-in-Lending Disclosure (TIL) is eliminated

Replaced with Loan Estimate

CFPB Mandated Changes 2015

Lenders may not impose fees on a consumer before a consumer has received a Loan Estimate.

EXCEPTION:

A fee may be collected for obtaining a credit report.

This fee must be bona fide and reasonable.

Restrictions

For Applications on or after October 3, 2015:

HUD settlement statement prepared for closing is eliminated

Final Truth-In-Lending statement is eliminated

CFPB Mandated Changes 2015

LOAN ESTIMATE

• Lender primarily responsible for preparing the Loan Disclosure.• Settlement Agent may prepare and deliver the form at closing.• Fat chance of that happening

• Creditors not allowed to revise and re-disclose if loan charges go up or down prior to the closing.

• Errors are not legitimate reasons for revising the Loan Estimate.

LOAN ESTIMATE (cont)

Estimates the actual closing costs.

Three categories of expenses

LOAN ESTIMATE (cont)Category A- Lender (Origination) charges

Application feeUnderwriting feePoints

Cannot change on the Closing Disclosure

LOAN ESTIMATE (cont)Category B- Services Borrower did not shop for

AppraisalFlood zone determinationCredit report feeTax escrow feesLender’s attorney fee

10% Tolerance

LOAN ESTIMATE (cont)Category C- Services Borrower did shop for

Title insuranceTitle searchBorrower’s attorneyHazard insurance premium

May be different on the Loan Closing Disclosure

LOAN CLOSING DISCLOSURECost descriptions must be similar to those given on the

Loan Estimate.

Summaries of Transactions contains adjustments between Buyer and Seller.

Comparison Table shows the amounts on the Loan Estimate and the Final Figures.

Loan Closing Disclosure w/ Cash to close information is provided to the Consumer three days prior to closing.

LOAN CLOSING DISCLOSUREAdditional Disclosures on LCD:

• Assumption

• Demand Feature

• Late Payment Charge

• Negative Amortization

• Partial Payments

• Whether Borrower granting Security Interest property

Agent Contact Information

Required to complete the Loan Closing Disclosure

“Contact”

Teams?

BORROWER REVIEW PERIOD

• 3-day waiting period after delivery of the Closing Disclosure ;

• Borrower has 3 days to review the document before a closing may occur;

• Changes will requires additional 3-day waiting period if:1. the loan program changes (ex. from fixed to variable)2. the APR increases (greater than 1/8%)3. a prepayment penalty is added

APR

• Generally included:• Points

• Pre-paid interest• Origination fees including loan processing, underwriting

and document preparation• Attorney and notary fees

• Closing agent's document preparation fees• Private mortgage insurance (PMI)

Settlement Agent Responsible to Provide the Closing Disclosure

The Closing Disclosure format for the Seller may be either:

The same format as for Borrower, using only Seller’s data

Using the separate CFPB Seller’s Disclosure Form

There is no 3-day waiting period for the Seller.

Disclosure must be delivered on or before the date of “consummation.”

CFPB Addendum

• Developed by Real Property Section, CBA

• Long Document– Education– Timing– Adjustments or prorations– Boards may adopt some version

CFPB Addendum (wait!, there’s more!)

• Timing– All figures at least 10 days ahead of closing– If seller or seller’s attorney don’t provide . . .

• How will that sit?

• Fuel– December- March- 4 gallons per day– Alternatives: fill the tank or measure 10 days out and that’s it

Ok, So Now What?

• Lots of Players and Moving Parts– Competitive situations will cause changes

• Settlement agents– i.e. Attorneys

• Lenders• Agents• Sellers

Lenders

• Scared to Death– CFPB eats what it kills. It lives off fines and penalties– Now responsible for their subcontractors

• Will keep a death grip on all aspects of the transaction

• Very little opportunity to test new systems– There will be issues– There will be errors and reversals of policy– They will blame the CFPB for everything

Settlement Agents

• New costs and burdens– “Best Practices” compliance– Hardware and software– Ethical issues

• If the lender is telling you what to do and how to do it, who are you representing?

• Consolidation among settlement agents• Coping with assembling all of the numbers well ahead of

closing- when some of the numbers may not be available

Licensees

• Will licensees be the center of the transaction?• Will attorneys be readily available to handle problems

– Closing “mills”• Information earlier in the transaction

– Commission statements accurate– Work done to resolve inspection issues– Don’t count on post-closing escrows

• Managing seller expectations– CFPB has put seller out in left field

Licensees (cont.)

• Fuel and other adjustments– Full tank?– NLCB method– CFPB Addendum

Licensees (cont.)

• Watch closing dates– End of month– Time needed from “clear to close”

• Update forms – Hiccups within 10 days of closing may result in delays– “Broom clean”

• Service will be as important as rate and term– You don’t want to be depending on a bad airport

The Good News . . .We’ll all get through this