TILA-RESPA INTEGRATED DISCLOSURE RULE

Speakers:

David Baghdady, Assoc. State Counsel/AVP, First American Title Ins. Co.

Richard Hogan, Vice President and Associate General Counsel, CATIC

Jeremy Potter, General Counsel and Chief Compliance Officer, Norcom

Mortgage

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Agenda

• Why We’re Here

• Is it the Final Rule?

• The Forms – LE & CD

• Evaluating the Rule

• Challenges for banks and its attorneys

• Answers to Unanswered Questions

• Q&A

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The New Forms – TILA Liability

• Loan Estimateo Three pages long

• Combines early two-page TIL

and three-page GFE

o Who provides?

• Two options: lender or

mortgage broker

• Lender responsible either way

o When?

• Within three days of

application

o Still subject to tolerances

o Mandatory revision at rate lock

o Permissive revision at Changed

Circumstance

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• Closing Disclosureo Five pages long

• Combines three-page HUD-1

and final two-page TIL

o Who provides?

• Two options: lender or

combination of lender and

settlement agent

• Lender responsible either way

o When?

• Three days before closing

• Exceptions

Basics• Applicable Loans

o Final rule applies to most consumer mortgages, EXCEPT:

• Home-equity lines of credit

• Reverse mortgages

• Mortgages secured by a mobile home or dwelling not

attached to land

• No-interest second mortgage made for down payment

assistance, energy efficiency or foreclosure avoidance

• Lenders who make 5 or fewer loans in a year

• Required on all loans with application dates

October 3, 2015 and beyondo No early adoption

o No exceptions for lender size or lender type (exceptions by

product only)

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LOAN ESTIMATE

• Required upon receipt of 6 pieces of information:o Consumer’s name, income and social security number

o Property address, estimated value of the property

o Amount of loan sought

• Implications abound:o Point of sale (POS) software & on-line application software

o New rules in the LOS or document management software

o Pre-Qualifications & Pre-Approvals may change

o Consumers almost certain to receive LE earlier than compared to

today’s receipt of GFE

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What can be provided prior to LE?

• Pre-Application Worksheetso Pre-Application worksheets can still be provided, however, they

must include special verbiage:

“Your actual rate, payment, and costs could be higher.

Get an official Loan Estimate before choosing a loan.”

o The font must be a minimum 12 point font or larger, must appear

at top of first page.

o The pre-application worksheet cannot look like the Loan Estimate.

LOAN ESTIMATE – Who Provides

• Mortgage Broker Can Provide Loan Estimate – at

lender’s discretion

• But Broker Must Comply with All Requirements

Applicable to Creditor

• All parties bound by the disclosure once provided

to consumer

Questions:

• Will Creditors Let Brokers Provide the Loan Estimate?

• Is lender allowed to re-issue LE upon receipt of

broker application?

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Identified Providers List

• List Must be Provided Within Same Time-Frame as

Loan Estimate

• But Separate From Loan Estimate

• New “Model” List Provided by CFPB

• Identified Services Must Match Services Identified as

Shoppable on Page 2 of Loan Estimate Form

Implications:

• Lenders have revisited Settlement Provider policieso Must disclosure at least 1

o ALTA Best Practices and CFPB Vendor Management triggered

• Cannot escape zero tolerance entirely8

Don’t forget the “Your Home Loan

Toolkit”• This replaces the Special Information Booklet, AKA

Settlement Cost Booklet, AKA Shopping for a Home

Loan Booklet.o Must be provided within 3 business days of an application

o Is designed to be interactive so best delivery method is

electronically, but can be given in paper format

o Streamlined from the previous versions and very consumer friendly

and basic, especially for first time home buyers

• Implicationso Training

o LOS

Consumer Shopping

• A creditor permits a borrower to shop for third party

settlement services when they:o Inform borrowers on Loan Estimate

o Provide them with a written list of settlement service providers

• The creditor may still impose reasonable

qualifications for providers (i.e. licensed provider)

Implications

• How will lender obtain borrower’s selection, vet the

provider and communicate with provider in order to

produce CD on time?10

10% Variance Bucket

• 10% Tolerance Bucket includes:o Recording fees

o If consumer selects Provider on list, charge must be included in 10% Tolerance Bucket (assuming it is not an affiliate)

• If consumer selects Provider not on list, charge is not subject to any variance (but implications for vendor management and post-closing still important)

• 10% Tolerance is provided for All charges in bucketo Individual charges may increase by more than 10% (i.e. notary)

o Disclosure required when aggregate exceeds10%

• If charge in bucket is not actually performed, item must be removed for comparison purposes

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Zero Variance Bucket

• Includes the following:o Fees that are paid to a creditor and mortgage broker

o Fees paid to an affiliate of the creditor (New)

o Fees paid if borrower not permitted to shop for the service (New) –

appraisal, credit repot, etc.

o Transfer Taxes

• Zero tolerance may be overcome in changed

circumstances or in other circumstances where

revisions are permitted

• Important Note on Appraisals: Requires revision of

policy or revision of agreements with AMCs in some

cases

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Permitted Revision of Loan Estimate

• General rule = No Changes

• A revised LE is required at rate lock

• A revised LE also permitted if there are “changed

circumstances:”o Any time the approved change affects “settlement charges”

o A change to eligibility for specific loan terms:

• Credit score

• Appraisal report indicates loan amount or inspection needed

o Where the increase in charges exceeds applicable tolerances

• Items in 10% bucket increase by more than aggregate 10%

• APR tolerances exceeded by more than 1/8 (triggers 3 day

waiting period)

• Consumer requests another copy

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When Must You Give the Revised Loan Estimate?

• Revised loan estimate may not be provided on the

same date (or after) the closing disclosure is

provided

• For anyone disclosing the CD “early” and planning

to revise prior to closing – important to monitor

tolerances

• Once initial CD is disclosed certain tolerances

cannot be reset depending on closing date

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What Happens if Things Change Close to Closing and You Cannot issue a

Revised Loan Estimate?

• Revised CD can show changes but only certain

changes can be charged to consumer

• If there are less than 4 business days between

closing and the time a revised loan estimate would

have otherwise been required to be providedo If the triggering event occurs between the 4th and 3rd business

day from closing

• Show the revised disclosures on the closing disclosure

provided 3 business days before closing

o If the triggering event occurs after the first closing disclosure has

been provided

• Show revised disclosures on closing disclosure provided at

closing15

What Must be Done if the Charges Exceed the LE Thresholds

• If the amounts paid by the consumer at closing

exceed the amounts disclosed on the LE beyond

the applicable tolerance threshold, the creditor

must refund the excess to the consumer no later

than 60 calendar days after consummation.

• Additional disclosures or refunds may also be

required for charges that change after closing – for

example, recording fees.

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Closing Disclosure

• Delivered by:

o Lender

o Lender may rely on Settlement Agent, but Lender remains

responsible for accuracy

• To all consumers who have right of rescission

• Three business days before closing

• Lender must retain Buyer’s/Borrower’s CD and supporting

documentation for five (5) years

• In Sale transaction, lender must obtain copy of Seller’s

Closing Disclosure from Settlement Agent but has no

obligation to request/retain supporting documentation (unless provided provided)

Three Day Advance Disclosure

• Closing disclosure received 3 business days

before “consummation” (closing)

o Business day includes Saturday whether lender is

open or not1

• Changes requiring a new 3 business day

waiting period2

o Annual percentage rate becomes inaccurate

(increases) most loans 1/8%; certain loans 1/4%

o Loan product changed

o Prepayment penalty added

112 CFR § 1026.2(a)(6) 2nd sentence 212 CFR § 1026.19(f)(2)(ii)

Three Day Advance Disclosure (cont)

• If not provided in person (i.e. mailed), add 3

business days for presumed receipt1

• Consumer may not waive the 3 day waiting

period except in the event of a “Bona Fide

Personal Financial Emergency”2

112 CFR § 1026.19(f)(1)(iii)212 CFR § 1026.19(f)(1)(iv)

Closing Date-SaleSUNDAY MONDAY TUESDAY WEDNESD

AYTHURSDAY

FRIDAY SATURDAY

16 17 18 19 20Closing Disclosure MAILED

21Mail Day 1

22Mail Day 2

23Sunday doesn’t count

24Mail Day 3=Receipt 3 Days before Close

252 Days before Close

261 Day before Close

27OKAY to Close

28 29

SUNDAY MONDAY TUESDAY WEDNESDAY

THURSDAY

FRIDAY SATURDAY

16 17 18 19 20 21 22

23 24Hand Delivery =Receipt3 Days before Close

252 Days before Close

261 Day beforeClose

27DisclosureDay 3OKAY to Close

28 29

Mail Delivery:

Hand Delivery:

Closing Date-Refinanceso Even with 3 days advance disclosure before closing

(consummation)

o 3 day rescission period still applies in refinance of principal

residence

SUNDAY MONDAY TUESDAY WEDNESDAY

THURSDAY FRIDAY SATURDAY

16 17 18 19 20Closing Disclosure MAILED

21Mail Day 1

22Mail Day 2

23Sunday doesn’t count

24Mail Day 3 =Receipt

25Disclosure Day 1

26Disclosure Day 2

27DisclosureDay 3 =OKAY to Close

28Rescission Day 1

1Rescission Day 2

2Sunday doesn’t count

3Rescission Day 3 =Rescission expires at midnight

4Okay to disburse

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Closing Disclosure

Page 1- Format mirrors page 1 of

Loan Estimate so as to facilitate comparison

- Dynamic functions same as Loan Estimate

Closing Disclosure

Page 1 - Refi

(a) General Information

Notes: “Sale Price” replaced with “Appraised Prop. Value”“Seller” removed and “Lender” moved up

Closing Disclosure Page 2

- Format same as L.E. page 2- Item labels must match L.E.- Now five (5) columns- Alpha-numeric section scheme- Lines can be borrowed between sections but can’t exceed standard form- Can be split into Page 2a (Loan Costs) and 2b (Other Costs)

Closing Disclosure Page 2

- Broker Fee paid by lender shown in “Paid By Others” column (“(L)”)- Specific Buyer Settlement Fees paid by Seller or third-parties shown in “Paid

By Others”- Credits given by lender/broker for specific Settlement Fees shown in “Paid By

Others” - Charges placed in section based upon actual shopping/non-shopping by

consumer

Closing Disclosure Page 2 – refi

(f) Loan Costs

A. Origination Charges

B. Services Borrower Did Not Shop For

C. Services Borrower Did Shop For

D. Total Loan Costs

Closing Disclosure Page 2 (cont.)

(g) Other Costs

F. Prepaids:01. Homeowner’s Ins. Premium02. Mortgage Ins. Premium 03. Prepaid Interest04. Property Taxes

H. Other:01. HOA Capital Contribution

****05. Real Estate Commission 06. Real Estate Commission 07. Title - Owners title

(h) Total Closing Costs

Closing Disclosure Page 2 (cont.)

E01 – Recording Fees- Recording fees for additional documents

(e.g. POA) added to total but NOT itemized

F. Prepaids – Limited to seven (7) lines

H. Other– Charges for services not required by

lender (e.g. Brass band at closing)- Retained binder deposit is NOT netted

from realtor commission

J – Lender Credits- General lender credits not tied to

specific charge(s)- Cure for tolerance violation (with

notation)

Closing Disclosure Page 2 - Refi (cont.)

E02 – Transfer Taxes removed

Closing Disclosure

Page 3(i) Calculating Cash to Close

• Tolerance amounts shown here

(j) Summary of borrower’s transaction

(k) Summary of seller’s transaction• Itemizations in J and K are

like page 1 of today’s HUD-1 Settlement Statement

Closing Disclosure

Page 3• “Calculating Cash to Close”

a) “Total Closing Costs” – Section J,

page 2 of CD

b) “Closing Costs Paid Before Closing” –

Section J, page 2 of CD

c) “Closing Costs Financed”

– For purchase transaction, likely $0

d) “Down Payment/Funds From

Borrower” - difference between

purchase price and principal loan

e) Deposit - initial deposit shown as

negative number.

Closing Disclosure

Page 3• “Calculating Cash to Close”

f) “Funds For the Borrower” - always $0

in a purchase transaction

g) “Seller Credits”- shown as negative

number

i) “Adjustments and Other Credits” –

net of Buyer/Seller adjustments plus

credits to Buyer from someone

OTHER than the loan originator,

lender or seller

Closing Disclosure

Page 3• “Summaries of Transactions”

- K04 – payoff of loan in refinance

- Now 2 sections for Adjustments:

i) charges owed by borrower not otherwise

disclosed elsewhere in the form

(Rent collected by Buyer after closing)

ii) charges paid by Seller in advance

iii) Identify item and show time period to

which the amount stated applies

iv) adjustments carried over to Seller side

- Section L – incl. general seller credits,

walk-through issue credits, second

mortgage proceeds (notation for gross, net

in column)

Closing Disclosure

Page 3• “Summaries of Transactions”

- “Other Credits” – general credits given

to the Buyer by anyone other than the

Seller

- Now 2 sections for Adjustments:

i) charges owed to borrower not otherwise

disclosed elsewhere in the form

(Rent collected by Seller before closing)

ii) charges not paid by Seller

iii) Identify item and show time period to

which the amount stated applies

iv) adjustments carried over to Seller side

Page 3 - Refi

(t)(5)(vii) Payoffs and Payments

(e) Calculating Cash to Close (alternative table)

- Tolerance amounts shown here

- Total Closing Costs shown as negative number

- Closing Costs Paid Before Closing shown as positive number

- Closing Costs Financed is sum of two (except for Cash-In refi)

Closing Disclosure

Page 4

(l) Loan Disclosures

(m) Adjustable Payment (AP) Table*

(n) Adjustable Interest Rate (AIR) Table*

* Tables are only included if applicable

Closing Disclosure Page 5

§ 1026.38(o)-(q)

(o) Loan Calculations

(p) Other Disclosures

(q) Questions Notice

Closing Disclosure Page Five (cont.)

§ 1026.38(r)-(s)

(r) Contact information (Refinance)Contact information for:1. Lender2. Mortgage Broker3. Settlement Agent

(r) Contact Information (Sale) Contact information for:1. Lender2. Mortgage Broker3. Real Estate Broker (B)4. Real Estate Broker (S)5. Settlement Agent

(s) Signature Statement

Rules RE Corrected CD’s• Additional 3-day period for inaccurate APR (increase), change in

loan product, addition of pre-payment penalty

• If change is NOT one of the above, no additional 3-day waiting

period but must deliver no later than day of consummation and

make available for inspection by borrower on day before

• For changes occurring within 30 days after consummation, must

deliver or place in mail no later than 30 days after possession of

information

• For non-numerical errors, must deliver within 60 days after

consummation

• For tolerance violations not remedied at consummation, must deliver

no later than 60 days after consummation along with any amount

owed

• Lender must retain copy of Closing Disclosure and all related

documents for period of five (5) years after consummation (closing)

INTRODUCING…

DOUG PITT

Seller’s CD – The Forgotten Form

• Settlement Agent’s obligation to provide

- Buyer’s CD with Seller’s #’s added

- Full CD with only Seller’s #’s

- Seller’s CD

• Must be delivered at/before consummation

• Copy to Lender

• For changes affecting amount paid by Seller

occurring w/in 30 days after consummation,

provide corrected disclosure w/in 30 days of

possession of information

Seller’s CD Page 1

(ADD SELLER’S DISCLOSURE HERE)

Seller’s CD Page 1

(ADD SELLER’S DISCLOSURE HERE)

Seller’s CD Page 2

Seller’s CD Page 2

Issues to be Resolved

• Who can amend Final Disclosure?

• How will Lender and Closing software interact?

• Will Lenders want to do more in-house?

• What about the Seller’s Disclosure?

• What is the policy on redisclosing the CD and

resetting tolerances?

• Can rate extensions the day or two before closing

be updated to charge the borrower? What if

“lender credits” are decreasing?

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Issues to be Resolved, cont’d.• CD must be delivered to anyone with right to

rescind. How will we handle the non-borrowing spouse whose information we likely have but not guaranteed to have electronically?

• Where would you place Upfront fees including MI and VA or USDA Funding Fee – “B. Services Borrower Cannot Shop For” or “Prepaids” + “Other Gov’t fees”?

• Is a Non-owner occupied rental property a business purpose loan?

Issues to be Resolved, cont’d.• Did the CFPB’s one-page guide to public on TRID

make APR decreases exempt from 3 day waiting

period?

• Will declining MI require new “payment table” for

each change on page 1 of LE/CD? Or is a new

table only required when MI falls off completely?

• How are lenders going to document “US Mail”

disclosures?

Issues to be Resolved, cont’d.• Can lenders use the so-called “mailbox rule” for e-

mail disclosures?

• What other disclosures are required by TRID?

• What are the implications of the E-SIGN Act on

TRID?

• What will be the mechanism to ensure compliance

post-closing?

Other QUESTIONS?

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