The TILA-RESPA Integrated Disclosures Rule consolidates. Estimate (GFE) into the Loan Estimate and. the Closing Disclosure

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2 Agenda This training consists of three parts explaining the general requirements of the law that consolidated multiple disclosures into two separate forms; the Loan Estimate and the Closing Disclosure: Chapter 1 Introduction to the Integrated Disclosures Rule Chapter 2 Delivery of the Loan Estimate and Closing Disclosure Chapter 3 Changes to the Loan Estimate 2

3 Integrated Disclosure Rule COURSE OBJECTIVES Explain the purpose of the two disclosures and their relationship to each other Understand the receipt and delivery requirements of the disclosures Recognize the circumstances when and if the disclosures may be revised and the timelines for any reissuance Identify the different tolerance levels for increases to settlement charges as disclosed 3

4 Consolidated Disclosures Topic 1 Objectives Describe the two consolidated forms required by the Rule List the types of covered loan transactions Understand the different business day definitions that apply Explain other post-consummation disclosures that the Rule requires 4

5 Consolidated Disclosures The TILA-RESPA Integrated Disclosures Rule consolidates o Initial TIL and Good Faith Estimate (GFE) into the Loan Estimate and o Final TIL and HUD-1 into the Closing Disclosure 5

6 Settlement Costs Estimate The Loan Estimate must be delivered to the applicants within three business days of application and at least seven days prior to loan consummation. 6

7 Comparison of Estimate vs Actual The Closing Disclosure must be received at least three business days ahead of consummation 7

8 Disclosure of Loan Information Both the Loan Estimate and the Closing Disclosure also include: o APR, o Notice about the right to receive a copy of the appraisal o You may not be able to refinance o Assumption o Servicing 8

9 Covered Transactions Closed-end consumer credit transactions secured by real property. o A consumer credit transaction is one that is primarily for personal, family or household purposes. Construction loans Loans securing vacant land are also included Lot size is no longer a factor in determining if the disclosure applies 9

10 Disclosures Do Not Apply For: Open-end loans, such as home equity lines of credit (HELOCs), Reverse mortgages Loans secured by dwellings that are not attached to real property (mobile homes, as an example) No-interest, down payment assistance programs for low-tomoderate income borrowers Business, commercial or agricultural loans 10

11 Two Different Business Days A general business day definition applies to the delivery of the initial or any reissued Loan Estimate. o Any day day on which the creditor s offices are open to the public for carrying out substantially all of its business functions. In all other instances, TILA's rescission definition of all calendar days except Sundays and legal public holidays applies. 11

12 Post Consummation Requirements The Rule adds two new disclosures an Escrow Closing Notice and a Partial Payment Notice. They are applicable after consummation and are considered optional information for the purposes of this document. 12

13 Integrated Disclosure Requirements Topic 2 OBJECTIVES List the key aspects of a mortgage loan application under the Rule Understand who must receive the integrated disclosures Describe the record retention requirements of the Rule Identify special information booklets that must be provided for certain loan types 13

14 Application The definition of an application is now clearly six pieces of information. o o o o o o The applicant's name The applicant's income The applicant's social security number The property address An estimate of the value of the property The mortgage amount requested 14

15 Multiple Applicants If there are multiple applicants on the loan application, it is only necessary to provide the Loan Estimate and the Closing Disclosure to the borrower who will be primarily liable on the loan. An exception to this rule is for rescindable transactions where the Closing Disclosure must be given separately to each consumer who has a right to rescind under TILA; that is, anyone holding title to the property. 15

16 Loan Estimate Record Retention All documents must be retained for three years. This includes: The original Loan Estimate Any revisions with: o explanation of the reason for the revisions, o how they affected settlement costs and o that they increased only relative to the reason for the revision That the timing requirements were satisfied Corrected disclosures may reflect multiple changed circumstances, provided that the documentation demonstrates that each correction complies with the requirements. 16

17 Closing Disclosure Record Retention Lenders must retain records demonstrating compliance with the requirements of the Closing Disclosure, including the seller's copy, for five years after consummation. These must be provided to any transferee owner or servicer who then must retain these records for the remainder of the five-year period. The records must include: Evidence that the creditor differentiated between affiliated and independent third party providers Documented reasons of any revisions of the Closing Disclosure Verification of proper calculation of any costs that were averaged as allowed by the regulation 17

18 Settlement Cost Booklets The requirement to provide special booklets to mortgage applicants did not change with the Integrated Disclosures Rule; the following serve as a reminder of the requirements. 18

19 Delivery of the LE and CD Chapter 2 OBJECTIVES: Understand the requirements for delivering the disclosures to a borrower Identify the timelines by which borrowers must receive the disclosures and any waivers of these timelines that are available Explain the importance of a borrower's intent to proceed with a loan application List the requirements for post-consummation corrections 19

20 The Loan Estimate Topic 1 Objectives Explain the purpose of the Loan Estimate and its delivery requirements Calculate the timing of delivery and receipt of the disclosure by the borrower Understand the differences in the term business day and how that affects delivery of the Loan Estimate Recognize the significance of a borrower expressing an intent to proceed 20

21 A Good Faith Estimate The Loan Estimate is a lender's written good faith estimate of closing costs and loan terms. The lender must make these disclosures based on the best information reasonably available at the time the Loan Estimate is prepared. This means that the lender must exercise due diligence in determining that accurate information is given on the disclosure. 21

22 Who Provides The LE? The creditor is responsible for providing the Loan Estimate to the applicant. A creditor is the lender to whom the loan is initially payable. A broker may provide the disclosure for the creditor and will be expected to comply with all requirements for its preparation, delivery and record retention. However, the creditor remains responsible for ensuring that the requirements have been satisfied. Note: The creditor must honor any Loan Estimate issued by a broker. It may not issue a duplicative disclosure or revised disclosure that corrects an error by the broker. 22

23 Denied, Withdrawn If a loan application is denied or withdrawn by the applicant within the three-business-day period after application, the creditor is not required to provide the Loan Estimate. If the application should later be re-opened for approval, it should be treated as a new application. 23

24 Pre-Disclosure A creditor may provide a prospective applicant with loan terms, estimated payments and estimated costs specific to that applicant prior to issuing a Loan Estimate, but must also include a predisclosure statement. 24

25 Loan Estimate Delivery MiMutual is not open on Saturday so the Loan Estimate is considered received on the following Monday, or three business days after it was mailed. The seven-business-day wait period follows a different business day definition and includes Saturdays, even though MiMutual is not open for business on a Saturday. Sunday Monday Tuesday Wednesday Thursday Friday Saturday Loan Estimate is Mailed Sunday Monday Tuesday Wednesday Thursday Friday Saturday Loan Estimate is Considered Received Loan Can Close on the Seventh Business Day 25

26 Intent To Proceed An applicant must receive a Loan Estimate and indicate an intent to proceed with the loan application before a creditor may charge any type of fee, other than a fee for a credit report. A fee is considered charged if the applicant is required to provide a method of payment, even if the payment is not made at that time. 26

27 Unacceptable Practices Hold Check A creditor requires that an applicant provide a check that it will not cash until after the Loan Estimate is delivered and the applicant expresses intent to proceed. Holds Credit Card Number A creditor collects a credit card number and promises not to charge any amount on the card before the applicant receives the Loan Estimate and expresses intent to proceed (unless the creditor only charges a credit report on the card). Multiple Charges A creditor charges a credit report on an applicant's credit card and also charges the credit card for an appraisal later, after the applicant receives the Loan Estimate and expresses intent to proceed. 27

28 Closing Disclosure Waiting Period Topic 2 Objectives: Understand the purpose of the Closing Disclosure and its delivery requirements Explain the responsibilities of the lender and settlement agent regarding the disclosure's delivery and accuracy Identify the Rule's waiting periods and learn if they can be waived Give examples of corrections to the Closing Disclosure with their timeframes 28

29 Delivery of the Closing Disclosure Must be received by the borrower no less than three business days prior to loan consummation. If it is not provided in person it is considered to have been received by the borrower three business days after it is delivered or put in the mail (including electronic mail). No fee may be charged by any party for preparing or delivering the Closing Disclosure 29

30 Consummation Consummation is defined in TILA as the date when a consumer becomes contractually obligated on a credit transaction and this is determined by individual State law. MiMutual considers the consummation date as the date the borrower(s) sign the closing documents (Note). 30

31 Seller s Closing Disclosure The settlement agent is responsible for providing the Closing Disclosure to the seller no later than the day of consummation. The seller may receive a Closing Disclosure with only the seller's information or with both the borrower's and seller's information. If the seller's information is on a separate Closing Disclosure the settlement agent is obligated to provide a copy to the creditor. 31

32 Settlement Agent Responsibilities Creditors may use a settlement agent to prepare or provide part or all of the Closing Disclosure; however it remains the creditor's responsibility to ensure accuracy and timeliness of providing the disclosure to the borrower. 32

33 Corrections and Re-disclosure The borrower has the right to review the revised disclosure one business day prior to consummation. A new three day waiting period applies when: o APR becomes inaccurate beyond the legal tolerance o There is a change in the product o A pre-payment penalty is added 33

34 Post Consummation Errors The creditor must deliver or place in the mail a corrected Closing Disclosure within 30 calendar days of discovering the change A borrower must receive a corrected Closing Disclosure within 60 calendar days after consummation for non-numeric, clerical errors that do not affect any disclosure requirements. Tolerance Cures Refunds that must be made to a borrower to correct tolerance violations must be made and a corrected Closing Disclosure delivered or placed in the mail within 60 calendar days after consummation 34

35 Waiting Period Waivers Waivers are only granted for bona fide personal financial emergencies such as imminent foreclosure. Documentation to support the reason for the waiver must in the loan file. 35

36 Changes to the Loan Estimate Chapter 3 Objectives Recognize the different tolerance levels for increases in settlement costs disclosed on the Loan Estimate Understand what circumstances warrant reissuing a Loan Estimate Explain the timing and delivery of a reissued disclosure and its relationship to delivering a Closing Disclosure 36

37 Increased Charges on LE Topic 1 Objectives Understand when settlement charges disclosed on a Loan Estimate may increase List these different tolerance levels for increases to charges Explain the importance and requirements of a creditor's written list of providers 37

38 Tolerance Levels The Integrated Disclosures Rule allows certain tolerance levels for increases in the disclosed settlement charges. These levels are generalized into three categories: Zero tolerance for increase No more than 10% of the total of certain charges No restriction on increase 38

39 Zero Tolerance Fees and charges paid to the creditor, broker, or an affiliate of either o Examples of these charges include an origination fee, processing fee, underwriting fee and loan-level pricing adjustments that are not built into the interest rate Fees paid to an unaffiliated third party if the creditor did not permit the applicant to shop for the provider o These fees may include appraisal, credit report, flood certification and lender's title insurance Transfer taxes 39

40 10% Cumulative Tolerance Recording fees Charges for settlement services required by the creditor for which the borrower is allowed to shop. The provider is not affiliated with the creditor and the borrower either: o o Did not choose the provider, or Chose a provider on the creditor's written list of providers 40

41 Charges With No Restrictions Prepaid interest Hazard insurance premium Prepaid escrow amounts Charges where the applicant was permitted to shop for the provider and chose one that was not on the creditor's written list of settlement service providers Charges to third parties that were not required by the creditor or broker 41

42 Due Diligence and Actual Charges The Rule specifies the requirement to provide reasonable estimates. As an example, if a loan originator knows that hazard insurance will be required but fails to estimate a charge for this insurance on the Loan Estimate, the lender is not in compliance When comparing the actual charges and the estimated charges to check the tolerance percentage, a creditor may only include charges for services actually performed 42

43 Written List of Providers If the lender allows the borrower to shop, they must provide a separate written list of providers at the same time as the Loan Estimate that: o o Identifies at least one available provider for each settlement service for which the applicant is allowed to shop, and States that the applicant is free to choose a different provider for that service 43

44 Changed Circumstances Topic 2 Objectives Identify the events that can trigger the reissuing of a Loan Estimate Define changed circumstances and their effect on settlement costs Understand the timing requirements for reissuing a Loan Estimate Recognize the interrelationship between multiple triggering events and these timing requirements 44

45 Reissuance of the Loan Estimate A Loan Estimate may not be reissued to correct technical errors, miscalculations or underestimations of charges. Only actual increases related to the reason for the revision may be included on a reissued Loan Estimate. Charges in the 10% tolerance category may warrant revision of the Loan Estimate only when the cumulative sum of the charges that are changed increase more than the 10% tolerance. NOTE: This is very different from the 2010 RESPA 10% tolerance guidelines. 45

46 Changes Affecting Eligibility If a changed circumstance affects a borrower's creditworthiness or the value of the property securing the loan and also affects an estimated charge disclosed on the Loan Estimate, the creditor may redisclose with the updated charge if the change in eligibility resulted in increased cost beyond the applicable tolerance threshold. Borrower Requests a Revision If a borrower requests revisions to loan terms or the transaction that affect the information disclosed on the Loan Estimate the creditor may reissue the Loan Estimate to reflect these changes if they exceed the applicable tolerance threshold. 46

47 Float to Lock Loan Estimate Discount points or lender credits to change a revised Loan Estimate must be provided within three business days of the date that the interest rate is locked. 47

48 Expiration of the Loan Estimate If a borrower does not indicate intent to proceed with the loan transaction within 10 business days after receiving a Loan Estimate, the creditor may reissue the disclosure. No justification is required for this type of change to the original Loan Estimate other than the lapse of 10 days. New construction: If a new construction loan is expected to close more than 60 days from the date a Loan Estimate was provided a creditor may issue a revised Loan Estimate up to 60 days before consummation. 48

49 Delivery of Reissued Loan Estimate A revised loan estimate must be delivered to the borrower within three business days of the change in circumstance. Any reissued Loan Estimate must be delivered in person or mailed (including electronic delivery) so that the borrower receives it no later than four business days prior to consummation, or at least one day prior to issuing a Closing Disclosure (a Closing Disclosure must be received by the borrower at least three days prior to consummation). A revised Loan Estimate may not be issued on or after the date a Closing Disclosure has been provided to the borrower. 49

50 Average Charge Pricing Creditors are allowed to develop an average charge for settlement services, except for any type of insurance or any charge based on the loan amount or property value. There are specific rules for determining how the average price is calculated. The average must be monitored to ensure it is accurate and useful. 50

51 Summary You should now be able to: Explain the purpose of the two disclosures and their relationship to each other Understand the receipt and delivery requirements of the disclosures Recognize the circumstances when and if the disclosures may be revised and the timelines for any reissuance Identify the different tolerance levels for increases to settlement charges as disclosed 51