The TILA-RESPA Integrated Disclosure (TRID) Rule. Compiled by: 110 Title, LLC

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1 The TILA-RESPA Integrated Disclosure (TRID) Rule Compiled by: 110 Title, LLC 1

2 I. Introductory Note The Dodd-Frank Wall Street Reform Act and Consumer Protection Act of 2010 (Dodd-Frank), ushered in the most comprehensive financial restructuring and regulatory reform taken since the Great Depression. It is a 2,315 page bill, it creates a host of new agencies including the Consumer Financial Protection Bureau (CFPB), requires regulators to create 243 rules, conduct 67 studies, and issue 22 periodic reports. GOAL OF THE ACT As it relates to our industry, the new legislation and regulation is primarily aimed at mortgage lenders. The Act purports to provide rigorous standards and supervision on financial institutions, and the CFPB is tasked with preventing predatory mortgage lending, "Promote the financial stability of the United States by improving the transparency and accountability in the financial system." improving the clarity of paperwork, and reducing incentives for mortgage brokers to push buyers into more expensive loans. Finally, lenders are in a position to potentially face millions of dollars in liability if they are not compliant. Though implementation and compliance will not be the responsibility of the real estate agent/broker, because of the role you play as a liaison with your client, lender and settlement provider, a working knowledge of the basics of these new rules will help you facilitate the transaction. What to know #1: The new laws/rules are vast and complex. Be patient with lenders and title/settlement agents during the initial stages of implementation. There is a HIGHER RISK FOR DELAYS! II. GENERAL A. Introduction For more than thirty (30) years, Federal law has required lenders provide to consumers two (2) different forms to consumers applying for a mortgage, and two different forms at or shortly before closing on the loan. Over the years, real estate agents and other professionals have become familiar with these various forms and disclosures. They are: The Good Faith Estimate (GFE), the Initial Truth-In-Lending (initial TIL), the HUD-1, and the Final Truth in Lending (Final TIL). Two different federal agencies developed these forms under two different Federal laws: The Truth in Lending Act (TILA), and the Real Estate Settlement Procedures Act 2

3 (RESPA). The information on these forms is both overlapping and inconsistent, often resulting in greater confusion to the consumer. The CFPB, with its regulatory authority under Dodd-Frank, has created new disclosure rules pertaining to certain residential mortgages, known as the TILA-RESPA integrated disclosure rule (the "TILA-RESPA Rule" or the "Know Before You Owe" Rule), and has mandated the use of two new forms for those disclosures. 1. The "Loan Estimate" (LE): Generally, the Loan Estimate, three pages, combines the information from the GFE and initial TIL, and must be provided to consumers no later than the third business day after they submit a loan application. 2. The "Closing Disclosure" (CD): The second disclosure, five pages, combines the HUD-1 and the Final TIL into what is now referred to as the "Closing Disclosure", which must be provided to the consumer at least three business days before consummation of the loan. 1 What to Know#2: The old familiar HUD-1 will be going away for most transactions. The Closing Disclosure will be the prominent form seen at the Closing Table. B. Overview of Coverage The new TILA-RESPA rule applies to most "closed-end" consumer credit transactions secured by real property. 2 The new rule does not apply to HELOCs, reverse mortgages, or mortgages secured by a mobile home or dwelling that is not attached to real property. Additionally, the rule will not apply to loans made by a person or entity that makes five or fewer mortgages in a calendar year, and is thus, not a "creditor" under the law. C. Effective Date The effective date for implementation of the new disclosures is October 3, After that date, all transactions covered by the new rules MUST use the new disclosures. What to Know #3: These new rules take effect on October 3, All mortgages that this rule applies to will use the new forms for applications received on and after that day. 1 For all intent and purposes, "consummation" is the same as "closing". However, they are technically different terms. 2 A loan or extension of credit in which the proceeds are dispersed in full when the loan closes and must be repaid, including any interest and finance charges, by a specified date, is known as "Closed end credit". The loan may require periodic principal and interest payments, or may require the entire payment of principal at maturity. Most real estate and auto loans are closed-end credit, while credit cards and home-equity lines of credit are open-end or revolving lines of credit. 3

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5 III. THE LOAN ESTIMATE A. Generally What to Know #4: Keep in mind that the Loan Estimate is going to be exclusively within the Lender's control. Nevertheless, understanding the basics will assist in communications with your client and keep transactions going forward. The "Loan Estimate" (or "LE"), 3 pages, provides the consumer with "good-faith estimates" of credit costs and transaction terms, and integrates and replaces the existing RESPA GFE, and the initial TIL. The lender is generally required to provide the Loan Estimate within three business days of the receipt of the consumer's loan application. It must be in writing and contain specific information. Delivery of the Loan Estimate must satisfy certain timing and method of delivery requirements. Creditors generally aren't allowed to issue revisions to Loan Estimates because they later discover technical errors, miscalculations or underestimation of charges. They are permitted to issue revised Loan Estimates in certain situations. What to Know #5: The LE is provided by the Lender to the Consumer, and provides Good Faith Estimates of credit costs and transaction terms. 1. The Loan Estimate - Page 1: General information, loan terms, projected payments, and costs at closing Page 1 of the LE includes general information, a "Loan Terms Table" with descriptions of applicable information about the loan, a "Projected Payments Table", a "Costs at Closing Table", and a link for consumers to obtain more information. The top of the page includes the name and address of the creditor. 2. The Loan Estimate - Page 2: Closing Costs Details Page 2 of the LE, called "Closing Costs Details", discloses four main categories of charges: 1. A good-faith itemization of "Loan Costs" and "Other Costs", associated with the loan; 2. A "Calculating Cash to Close" table to show the consumer how the amount of cash needed at closing is calculated; 3. For transactions with adjustable monthly payments, an "Adjustable Payment Table" with relevant information about how the monthly payments will change; and 5

6 4. For transactions with adjustable interest rates, an "Adjustable Interest Rate Table" with relevant information about how the interest rate will change. The items associated with the mortgage are broken down into two general types, "Loan Costs", and "Other Costs". Generally, "Loan Costs" are those costs paid by the consumer to the creditor/lender and third-party providers of services that the lender requires to be obtained by the consumer during the origination process. "Other Costs", include taxes, governmental recordation charges, and certain other payments involved in the closing process. 3. The Loan Estimate - Page 3: Additional Information About the Loan Page 3 of the Loan Estimate contains Contact Information, a "Comparisons Table", an "Other Considerations Table", and, a "Signature Statement" for the consumer to acknowledge receipt. B. Delivery of the Loan Estimate 1. Generally The creditor/lender is responsible for ensuring that is delivers or places into the mail the Loan Estimate no later than the third business day after receiving the consumer's loan application. The Loan Estimate must also be delivered or placed into the mail no later than the seventh business day before consummation of the transaction. 3 If the Loan Estimate is not provided to the consumer in person, the consumer is considered to have received the Loan estimate three business days after it is delivered or placed in the mail What is a "business day" for the delivery requirements of the Loan Estimate? A business day is a day on which the creditor's offices are open to the public for carrying out substantially all of its business functions. 5 3 These delivery and timing requirements are of paramount importance. They cannot be dispensed with. It may be a good idea to set reminders for each file in which you have a date set for closing to communicate with the lender regarding the delivery of these disclosures. Moreover, keep in mind that if you want to move a consummation to sooner date, the Loan Estimate must be sent to the consumer seven business days prior. 4 If placed in the mail, there is an additional 3 day waiting period. The consumer must have received the Loan Estimate at least seven days prior to consummation. Thus, if the Loan Estimate is sent by mail, it must be sent no later than 10 business days prior to consummation - 3 days for the mail, then the seven day minimum period. 5 This is important to know, only because it means something different for purposes of counting days to ensure that the consumer received the "Closing Disclosure". 6

7 What to Know #6: Though delivery of the LE is the responsibility of the Creditor, know that the Consumer is required to have the LE delivered or placed in the mail no later than 3 business days after their application. C. Good Faith Requirements and Tolerances 1. Generally Creditors are responsible for ensuring that the figures stated in the Loan Estimate are made in "Good Faith" and are consistent with the best information reasonably available to the creditor at the time they are disclosed. Whether or not a Loan Estimate was made in Good Faith is determined by calculating the difference between the estimated charges originally provided in the Loan Estimate and the actual charges paid by or imposed on the consumer in the Closing Disclosure. If the charge paid by or imposed on the consumer exceeds the amount originally disclosed on the Loan Estimate, it is NOT in good faith, regardless of whether the creditor later discovers a technical error, miscalculation, or underestimation of a charge. There are exceptions in which the LE may still be in good faith even if the charges imposed exceed those on the LE, and are briefly discussed below. The LE is considered to be in Good Faith if the creditor charges the consumer less than the amount disclosed on the LE, without regard to any tolerance limitations. What to Know #7: If the LE was NOT in Good Faith, that is, the charges disclosed on the CD are higher than those shown on the LE beyond the applicable tolerances, the Consumer is entitled to a refund from the Lender. 2. A creditor may charge more to the consumer than the amount disclosed in the Loan Estimate in specific circumstances: 1. Certain variations between the amount disclosed and the amount charged are expressly permitted by the TILA-RESPA rule, without regard to any tolerance; 2. The amount charged falls with explicit tolerance limit thresholds, and the estimated charge is not for a "zero tolerance" charge where variations are never permitted; or 3. "Changed Circumstances" allow for a revised Loan Estimate or Closing Disclosure, in which changes are allowed. 7

8 a) Items that may change without regard to a tolerance limitation: Certain costs or terms are permitted to change without any tolerance limitation. These charges are: 1. Prepaid interest, property insurance premiums, amounts placed into escrow, impound, reserve, or a similar account; 2. For services required by the creditor if the creditor permits the consumer to shop and the consumer selects a third party service provider NOT on the creditor's written list of service providers. 3. Charges paid to third party service providers for services NOT required by the creditor. (1) When may the consumer "shop for a service"? In addition to the Loan Estimate, if the consumer is permitted to shop for a settlement service, the creditor must provide the consumer with a written list of services for which the consumer can shop. This written list of providers is separate from the Loan Estimate, but must be provided within the same time frame - that is, it must be provided to the consumer no later than three business days after the creditor receives the consumer's application. The list must: 1. Identify at least one available settlement service provider for each service; and 2. State that the consumer may choose a different provider of that service. So with this definition in mind, if the consumer is permitted to shop, and they select a service provider not on the lender's written list, then it is not subject to a tolerance. What to Know #8: It is important to understand the distinction of "being able to shop" and not. If a "written list of service providers" is given to the Consumer by the Lender (within the same time frame as the LE), then it is assumed that the Consumer is "permitted to shop for the service." Thus, you will be in a position to refer your clients to providers of those services that they can shop for. "Services That You Can Shop For" generally may include: i) Pest inspections, ii) Surveys, iii) Title - Closing Agent, v) Title - Owner Title Insurance. "Services You Cannot Shop For" generally will include items such as: i) Appraisals, ii) Credit Reports, iii) Flood Certifications 8

9 b) Charges Subject to the a 10% Tolerance Charges for third party services and recording fees paid by or imposed on the consumer are grouped together and subject to a 10% cumulative tolerance. This means the creditor may charge the consumer more than the amount disclosed on the Loan Estimate for any of these charges so long as the total sum of the charges added together does not exceed the sum of all such charges disclosed on the Loan Estimate by more than 10%. These charges are: 1. Recording Fees 2. Charges for third-party services where: a. The charge is NOT paid to the creditor or the creditor's affiliate; or b. The consumer is permitted to shop for the third party service, and the consumer selects a third-party service provider on the creditor's written list of service providers. Remember that for purposes of this section, a lender's LE was in good faith if the cumulative of the settlement charges that are subject to the 10% tolerance, are not greater than a 10% increase as shown on the Closing Disclosure. Thus, even if a particular charge increased by more than 10%, if the cumulative of the entire category is still within the 10% tolerance, then the Loan estimate is said to be in "Good Faith." Some fees are subject to a "zero tolerance". That is, they MAY NOT increase at all from the LE to the CD. Those fees are: 1. Fees paid directly to the creditor or an affiliate; 2. Fees paid to unaffiliated third parties if the creditor did not permit the consumer to shop for a third party service provider; 3. Transfer taxes. 3. Charges paid exceed the amounts disclosed on the Loan Estimate beyond the applicable tolerance thresholds: If the amounts paid by the consumer at closing exceeds the amounts disclosed on the Loan Estimate beyond the applicable tolerance threshold, the creditor must refund the excess to the consumer no later than 60 calendar days after consummation. 1. For charges subject to a zero-tolerance, any amount charged beyond the amount disclosed on the Loan Estimate must be refunded to the consumer. 9

10 2. For charges subject to a 10% cumulative tolerance, to the extent the total sum of the charges added together exceeds the sum of all such charges on the Loan Estimate by more than 10%, the difference must be refunded to the consumer. D. Revisions and Correction to Loan Estimates 1. Generally Creditors are bound by the LE provided within three business days of the application, and may not issue revisions to Loan Estimates because they later discover technical errors, miscalculations, or underestimations of charges. Creditors are permitted to provide the consumer revised Loan Estimates (and use them to compare estimated amounts to amounts actually charged for purposes of determining "good faith") only in certain circumstances: 1. "Changed Circumstances" that occur after the LE is provided to the Consumer that cause estimated settlement charges to increase more than is permitted under the TILA-RESPA Rule; 2. "Changed circumstances" that occur after the LE is provided to the consumer affect the consumer's eligibility for the terms for which the consumer applied or the value of the security for the loan; 3. Revisions to the credit terms or the settlement are requested by the Consumer; 4. The interest rate was not 'locked' when the LE was provided, and locking the interest rate causes points or lender credits disclosed on the LE to change; 5. The consumer indicates an "intent to proceed" with the transaction more than 10 business days after the LE was originally provided; and 6. The loan is a new construction loan, and settlement is delayed by more than 60 calendar days, if the original LE states clearly and conspicuously that at any time prior to 60 calendar days before consummation, the creditor may issue revised disclosures. 2. What is a "Changed Circumstance"? A "Changed Circumstance" for purposes of a revised Loan Estimate is: 1. An extraordinary event beyond the control of any interested party or other unexpected event specific to the consumer or transaction; 2. Information specific to the consumer or transaction that the creditor relied upon when providing the Loan Estimate and that was inaccurate or changed after the disclosures were provided; or 3. New information specific to the consumer or transaction that the creditor did not rely on when providing the Loan Estimate. 10

11 a) Changed Circumstances that Affect Settlement Charges: A creditor may provide and use a revised LE redisclosing a settlement charge if changed circumstances cause the estimated charge to increase or, in the case of charges subject to the 10% cumulative tolerance, cause the sum of those charges to increase by more than the 10% tolerance. Examples of "changed circumstances" that affect settlement charges: 1. A natural disaster that damages the property or otherwise results in additional closing costs; 2. New information not relied upon when providing the Loan Estimate is discovered, such as a neighbor of the seller filing a claim contesting the boundary of the property to be sold. b) Changed Circumstances that Affect Eligibility: A creditor may also provide and use a revised LE if a changed circumstance affected the consumer's creditworthiness or the value of the security of the loan, and resulted in the consumer being ineligible for an estimated loan term previously disclosed. Examples of "changed circumstances" that affect eligibility: 1. The creditor relied upon the consumer's representation of $90, annual income, but underwriting determines that the actual annual income is $80,000.00; 2. There are two co-applicants for a loan, but one of the applicants subsequently becomes unemployed after the Loan Estimate is provided. 3. Consumer Requests for Revisions to the Terms or other Changes A creditor may use a revised Loan Estimate of a charge if the consumer requests revisions to the credit terms or settlement that affects items disclosed on the Loan Estimate and cause an estimated charge to increase Remember that providing a revised Loan Estimate allows creditors to compare the updated Loan Estimate to the Closing Disclosure. If amounts decrease, or increase only to an extent that does not exceed the applicable tolerance limits discussed above, the original LE is still deemed to be in good faith and redisclosure of a Loan Estimate is not permitted. 4. Loan Estimate Expires If the consumer indicates an "intent to proceed" with the transaction more than 10 business days after the Loan Estimate was delivered or placed in the mail to 11

12 the consumer, a creditor may use a revised LE. No justification other than the passage of 10 days is required to issue a revised Loan Estimate. What to Know or Practice Tip #9: Keep in mind that as the Realtor, you often know of changes that occur during a home purchasing process which may require that a Revised Loan Estimate be issued. (Ex. - Tree limb falls on the house that reduces the home's value, or changes to the borrower(s) employment or financial situation. Know that when the Revised LE is issued, it MUST be issued before the Closing Disclosure. Because the Closing Disclosure must be received no later than 3 business days before consummation, the new Revised Loan Estimate must be received by the Consumer no later than 4 business days prior to consummation. As such, to keep things moving forward, communicate any changes to the Lender as soon as possible. E. Timing for Revisions to the Loan Estimate 1. Generally The general rule is that the creditor must deliver or place in the mail the revised Loan Estimate to the consumer no later than three business days after receiving the information sufficient to establish that a revised Loan Estimate is justified. A creditor may not provide a revised Loan Estimate on or after the date it provides the Closing Disclosure. The creditor must ensure that the consumer receives the revised Loan Estimate no later than four business days prior to consummation. Because the Closing Disclosure must be provided to the consumer no later than three business days before consummation, this means that the consumer must receive a Revised Loan Estimate no later than four business days prior to consummation. If the creditor is mailing the revised Loan Estimate and relying upon the three day mailbox rule, the creditor would need to place in the mail the revised Loan Estimate no later than seven business days before consummation of the transaction to allow 3 business days for receipt. 12

13 IV. Closing Disclosures A. General Requirements of the Closing Disclosure For loans that require a Loan Estimate and that proceed to consummation, creditors MUST provide a new final disclosure reflecting the actual terms of the transaction. This is called the "Closing Disclosure" (or "CD"). This form integrates and replaces the existing HUD-1 and the final TIL. The creditor is generally required to ensure that the consumer receives the Closing Disclosure no later than three business days before consummation of the loan. 1. The Closing Disclosure generally must contain the actual terms and costs of the transaction. Creditors may estimate disclosures using the best information available when the actual term or cost is not reasonably available to the creditor at the time the disclosure is made. They are required to provide a corrected disclosure containing the actual terms of the transaction at or before consummation. 2. The Closing Disclosure must be in writing and contain specific information. 3. If the actual terms or costs of the transaction change prior to consummation, the creditor must provide a corrected disclosure that contains the actual terms of the transaction. 4. New three-day waiting period: If the creditor provides a corrected disclosure, it may also be required to provide the consumer with an additional three-businessday waiting period prior to consummation. Generally, for all "Federally related mortgage loans" subject to RESPA, the new form is mandatory. What to Know # 10: This is the form to become very familiar with. This is what will be reviewed at closing. To the extent your client has any questions regarding the costs of their real estate transaction, they will likely look to you for guidance on understanding the Closing Disclosure. B. "Consummation": Is it the same thing as Closing or Settlement? While "consummation" may generally occur at the same time as closing or settlement, it is a legally distinct event. Consummation occurs when the consumer becomes contractually obligated to the creditor on the loan, not for example, when the consumer becomes contractually obligated to a seller on a real estate transaction. Typically, in Louisiana, this will occur when the funds are made available to the consumer. Again, this is almost always done at the closing table. Nevertheless, to the extent that this event occurs prior to the real estate transaction, the Closing Disclosure must be provided three business days prior to that time. 13

14 C. Information on the Closing Disclosure 1. Page 1: General Information, Loan Terms, Projected Payments, and Costs at Closing a) Top Section - Closing Information, Transaction Information, and Loan Information 1. Closing information such as the date the CD was issued, the closing date, disbursement date, settlement date, address of the subject property, and sales price (or appraisal amount for loans without a seller, or estimated appraisal if no appraisal was required); 2. Transaction Information such as the Borrower, Seller, and Lender (the name and address of each buyer and seller must be disclosed); and 3. Loan Information such as the term, purpose, product, etc. b) Loan Terms Table 1. The Loan Terms Table discloses the loan amount, the interest rate, monthly principal and interest, whether or not there is a prepayment penalty, and whether or not there is a balloon payment. c) Projected Payments Table 1. The Projected Payments Table discloses the payment calculation of principal and interest, mortgage insurance, and estimated escrow, and an estimation of taxes, insurance and assessments. d) Costs at Closing 1. The Costs At Closing Table discloses the total amount disclosed as "Total Closing Costs" in the "Other Costs Table" on page 2 of the CD. The amount is itemized to show the Total Loan Costs, Total Other Costs, and Lender Credits. 2. The estimated amount of cash the consumer will pay at, or receive from, closing is shown as Cash to Close. This is detailed on page 3 of the Closing Disclosure. 2. Page 2: Closing Costs Details a) Loan Costs Table The Loan Costs Table is broken down into three categories. The amounts paid by the consumer, seller and others for item is disclosed here. The items disclosed in the Loan Costs Table should generally be the same as they were on the Loan Estimate, updated. The categories are: 14

15 (1) Origination Charges Loan originator compensation is disclosed as Origination Charges. (2) Services the Consumer did and did not shop for: When a consumer chooses a provider that was on the "Written List of Service Providers" for a service (as provided by the Lender/Creditor), that service is listed as Services Borrower Did Not Shop For in the Closing Disclosure Loan Costs Table. (3) Total Loan Costs Totals the amounts that are designated as Borrower-Paid at or Before Closing. b) Other Costs Table The items on the Other Costs Table are broken down into 4 categories: (1) Taxes and Other Government Fees (2) Prepaids Items to be prepaid by the consumer in advance of the first scheduled payment of the loan. Prepaids are: 1. Homeowner's Insurance Premiums; 2. Mortgage Insurance Premiums; 3. Prepaid Interest; 4. Property Taxes; and 5. A maximum of three additional items. a. Each item must include the applicable time period covered by the amount to be paid by the consumer and the total amount to be paid. (3) Initial Escrow Payment at Closing (4) Other Items are disclosed as "Other" to reflect costs incurred by the consumer or seller that were not required to be disclosed on the Loan Estimate. These costs include: 1. Real Estate Brokerage Fees; 2. Homeowner or condo association fees paid at consummation; 3. Home Warranties; 4. Other fees paid at closing that are not required to be disclosed elsewhere. 15

16 c) Total Other Costs and Total Closing Costs The total of all closing costs paid by the consumer, reduced by the Lender Credit. 3. Page 3: Calculating Cash to Close, and Summaries of Transactions On page 3 of the Closing Disclosure, the Calculating Cash to Close Table and Summaries of Transactions Table are disclosed. For transactions without a seller, a Payoffs and Payments Table may be substituted for the Summaries of Transactions table. It has three columns to disclose: i) the amount for each item as it was disclosed on the Loan Estimate, ii) the Final amount for the item, and iii) the Question: "Did this change?" a) Calculating Cash to Close Table The Calculating Cash to Close Table has nine items listed. They are: 1. Total Closing Costs, 2. Closing Costs Paid Before Closing, 3. Closing Costs Financed (Paid from your Loan Amount), 4. Down Payment/Funds from Borrower, 5. Deposit, 6. Funds for Borrower, 7. Seller Credits, 8. Adjustments and Other Credits, and 9. Cash to Close. (1) Total Closing Costs In the Final column, Total Closing Costs is the same amount as the amount disclosed as Total Closing Costs (Borrower-Paid) on page 2 of the Closing Disclosure. (a) Increases in Total Closing Costs that Exceed the Legal Limits When the increase in Total Closing Costs exceeds the legal limits, disclose a statement that an increase in closing costs exceeds the legal limits by the dollar amount of the excess in the "Did this Change?" column. b) Summaries of Transactions The Summaries of Transactions Table discloses the amounts associated with the real estate purchase transaction between the consumer and seller, together with closing costs, in order to disclose the amounts due from or payable to the consumer and seller at closing, as applicable. A separate Closing Disclosure can/will be provided to each so as not to reflect the other party's costs and credits. 16

17 Generally speaking, the Summaries of Transactions Table is similar to the Summary of the Borrower's Transaction and Summary of Seller's Transaction on the HUD-1. What to Know # 11: Borrowers and Sellers will likely be getting two different CDs with only the information relevant to their transaction shown on each due to privacy concerns addressed by the new rules. Keep in mind that if you represent Sellers, they are not required to receive their CD until the day of consummation. If you would like to see it earlier, contact the Settlement Company. In addition, Lenders may not send the consumer's CD to anyone due to privacy concerns. If you need to see the CD earlier in the process, your client will probably have sign a consent form. (1) Borrower's Transaction (a) Due from Borrower at Closing The amount due from Borrower at Closing is the sum of: 1. Sale price of the property; 2. Closing Costs Paid at Closing (as designated on Page 2 of the CD as Borrower-Paid At Closing); 3. Other consumer charges; 4. Adjustments; and 5. Adjustments for Items Paid by the Seller in Advance, pursuant to the contract. (b) Paid Already By or on Behalf of Borrower at Closing The amount Paid Already by or on Behalf of Borrower at Closing is the sum of: 1. Deposit; 2. Loan Amount; 3. Existing Loans Assumed or Taken Subject to; 4. Seller Credits; 5. Other Credits; and 6. Adjustments for Items Unpaid by Seller pursuant to the contract. (c) Cash to Close To or From Borrower The Total Due from the Borrower at Closing is disclosed as a positive number, the Total Paid Already by or on Behalf of the Borrower at Closing is disclosed as a negative number, and the sum as Cash to Close from Borrower when the number is a positive number, and disclose the sum as 17

18 Cash to close To Borrower when the result is a negative number. (2) Seller's Transaction The Settlement Agent completes and discloses the Seller's Transaction column of the Summaries of Transactions Table. (a) Due to Seller at Closing Is shown as the sum of: 1. The Sale Price of the Property; 2. Adjustments; and 3. Adjustments for Items Paid by Seller in Advance due to the seller pursuant to the contract. (b) Due From Seller at Closing Is shown as the sum of: 1. An excess deposit; 2. Closing Costs Paid at Closing by the Seller; 3. Existing Loan(s) Assumed or Taken Subject to by the Consumer; 4. Payoff of Mortgages; 5. Payment of other seller obligations; 6. Seller Credit; 7. Adjustments; and 8. Adjustments for Items Unpaid by Seller due to the consumer pursuant to the contract. (c) Cash to Close Due to or From Seller "The Total Due to the Seller at Closing" is shown as a positive number, and the "Total Due from Seller" at Closing is shown as a negative number. When the result of the sum of the "Total Due to Seller at Closing" and "Total Due from Seller" at closing is positive, it will read "Cash to Seller", and when the result of the sum is negative, it will read "Cash from Seller." 4. Page 4: Additional Information About the Loan a) Loan Disclosures Table In the Loan Disclosures Table, here you'll find: 1. Information concerning future Assumption of the loan by a subsequent purchaser; 18

19 2. Whether the legal obligation contains a Demand Feature that can require the early payment of the loan; 3. The terms of the legal obligation that impose a fee for a Late Payment including the amount of time that passes before a fee is imposed and the amount of such fee or how it is calculated; 4. Whether the regular periodic payments can cause the principal balance of the loan to increase, creating a Negative Amortization; 5. The creditor's policy in relation to Partial Payments by the consumer; 6. A statement that the consumer is granting a Security Interest in the property (along with an identification of the property); and 7. Information related to any Escrow Account held by the servicer (or a statement that an Escrow Account has not been established with a description of estimated property costs during the first year after consummation). b) Escrow Account Information (1) When an escrow account is established, disclosed in this section is: 1. The amount of Escrowed Property Costs over Year 1, with a list of the costs that will be paid by the Escrow Account; 2. The amount of Non-Escrowed Property Costs over Year 1 with a lists of the costs that will not be paid by the Escrow Account; 3. Initial Escrow Payment; and 4. Monthly Escrow Payment. (2) When an escrow account is not established, disclosed is: 1. The amount of Estimated Property Costs over Year 1; and 2. The amount of any Escrow Waiver Fee imposed for waiving the creation of an Escrow Account with the loan. (a) Property Costs include: 1. Property Taxes; 2. Homeowner's insurance; 3. Charges imposed by a cooperative, condominium or homeowners' association; 4. Ground rent; 5. Leasehold payments; and 6. Certain insurance premiums or charges if required by the lender. 19

20 c) Adjustable Payment Table The Adjustable Payment Table will be disclosed when the periodic principal and interest payment may change after consummation, but not because of a change to the interest rate, or the loan is a seasonal payment product. If the loan does not disclose these features, the AP Table will not be disclosed. d) Adjustable Interest Rate Table When the loan's interest rate may increase after consummation, this table will be disclosed. 5. Page 5: Loan Calculations, Other Disclosures, Contact Information, and Confirmation of Receipt a) Loan Calculations Under this subheading will be the total of payments, the finance charge, the amount financed, the APR, and the Total Interest Percentage. b) Other Disclosures Under this subheading will be i) A statement related to the consumer's rights in relation to any Appraisal conducted for the property, ii) A statement informing the consumer of consequences of nonpayment, what constitutes default, when a creditor can accelerate maturity, and prepayment rebates and penalties pursuant to contract details, iii) A statement of whether State law provides for continued consumer responsibility for any Liability after Foreclosure, a iv) A statement concerning the consumer's ability to Refinance the loan, and v) A statement concerning the extent that interest on the loan can be included as a Tax Deduction by the consumer. D. Delivery of the Closing Disclosure 1. Generally The creditor is responsible for ensuring that the consumer receives the Closing Disclosure from no later than three business days before consummation. To ensure for delivery, creditors must arrange for delivery as follows: 1. By providing it to the consumer in person; or 2. By mailing, or by other delivery methods, including . Creditors may use electronic delivery methods subject to compliance with consumer consent. 20

21 What to Know #12: Creditors face big fines for not complying with this timing requirement. As such, to the extent that the timing requirement conflicts with a scheduled closing date, know that lenders will NOT close. Realtors can play an important role in communicating with lenders with respect to their delivery arrangements. Keep in mind that if the lender will deliver it electronically, or via mail, the three business day presumption until receipt applies. Thus, for it to be received three days prior to consummation, it needs to be mailed three days before that. Thus the last day before consummation that it could be sent, and still close on the scheduled date is six days before consummation. Remember, there will be HIGHER RISK FOR DELAYS! 2. When has "Receipt" occurred? If the Closing Disclosure was provided in person, it is considered to have been received by the consumer on the day that it is provided. If it is mailed or delivered electronically, the consumer is considered to have received the Closing Disclosure three business days after it is delivered or placed in the mail. If the creditor has evidence that the consumer 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. 3. Closing Disclosure for the Seller The settlement agent (title company) is required to provide the seller with the Closing Disclosure reflecting the actual terms of the seller's transaction. It must be provided to the Seller no later than the day of consummation. 4. Waiving the Three Day Waiting Period Consumers may waive or modify the three business day waiting period when: 1. The extension of credit is needed to meet a bona-fide personal financial emergency (not an easy standard to meet); 2. The consumer has received the Closing Disclosure; and 3. The consumer gives the creditor a dated and written statement that describes the emergency, specifically modifies or waives the waiting period, and bears the signatures of all of the consumers who are primarily liable on the legal obligation. a. This will not happen often. Lenders will be very cautious to waive the three day waiting period. a) Three day waiting period and corrected Closing Disclosures The three-business-day waiting requirement applies to a corrected Closing Disclosure that is provided when there are: 1. Changes to the loan's APR; 2. Changes to the loan product; or 21

22 3. The addition of a prepayment penalty. E. Revisions and Corrections to the Closing Disclosure 1. Generally Creditors must redisclose terms or costs on the Closing Disclosure if certain changes occur to the transaction after the Closing Disclosure was first provided, that causes the Closing Disclosure to become inaccurate. There are three categories of changes that require a corrected Closing Disclosure containing all changed terms: 1. Changes that occur before consummation that require a new threebusiness-day waiting period; 2. Changes that occur before consummation that do not require a new threebusiness-day waiting period; and 3. Changes that occur after consummation. a) Changes before Consummation that Require a New Waiting Period If one of the following occurs after delivery of the Closing Disclosure and before consummation, the creditor must provide a corrected Closing Disclosure containing all changed terms and ensure that the consumer receives it no later than three business days before consummation. (1) The Disclosed APR becomes inaccurate If the Annual Percentage Rate (APR) previously disclosed become inaccurate, the creditor must provide a corrected Closing Disclosure with the corrected APR disclosure and all other terms that have changed. (2) The Loan Product Changes; or (3) A Prepayment Penalty is Added. Practice Tip: To the extent that a discovery is made in a walk-through could increase the APR (which is rare), it may be a good idea to perform a first walk through 10 days (or earlier) in advance of consummation. If any major issues are present that do in fact impact APR, it will still be early enough in the process to change the Closing Disclosure, and still close on time. A second walk through the day before is also advised. b) Changes before Consummation that DO NOT Require a New Waiting Period For any other changes before consummation that do not fall under one of the three categories above, the creditor must still provide a Corrected 22

23 Closing Disclosure with any terms or costs that have changed and ensure that the customer receives it, however, there is no additional three day waiting period required. The creditor must only ensure that the consumer receives it at or before consummation. What to Know #13: Many Realtors are under the impression that any changes to the transaction between the time the CD was received by the consumer and consummation will require a new CD and new three day wait period. RELAX. This is not the case! The ONLY instances in which a change necessitates a new three day wait period is if the APR increases by.25%, the loan product changes, or a prepayment penalty is added. Only in some situations would a change caused by the parties result in an increase in APR, so there is not much to worry about. Nevertheless, apprise Lenders of any changes to the transaction, as a new CD must still be issued at or before consummation, whether or not a new three day waiting period is required. c) Post-Consummation Corrected Closing Disclosures (1) Generally In some circumstances, creditors must provide a corrected Closing Disclosure if an event in connection with the settlement occurs during the 30-calendar-day period after consummation that causes the Closing Disclosure to become inaccurate and results in a change to an amount paid by the consumer from what was previously disclosed. (For example, recording charges were less than estimated). (2) Seller Charge Changes In some circumstances, Settlement Agents must provide a corrected Closing Disclosure if an event in connection with the settlement occurs during the 30-day period after consummation that causes the Closing Disclosure to become inaccurate and results to a change in the amount actually paid by the seller. The Settlement Agent must deliver or place in the mail a corrected Closing Disclosure not later than 30 calendar days after receiving information establishing that the event has occurred. (3) Clerical Errors on the Closing Disclosure Creditors must also provide a revised Closing Disclosure to correct non-numerical clerical errors and document refunds for tolerance violations no later than 60 calendar days after consummation. (4) Curing Tolerance Violations If the creditor cures a tolerance violation by providing a refund to the consumer, the creditor must deliver or place into the mail a 23

24 corrected Closing Disclosure that reflects the refund no later than 60 calendar days after consummation. 24