TRID TOPICS VIII June 8, 2015 TRID TOPICS Forms The Closing Disclosure (CD) WHAT IS THE CLOSING DISCLOSURE AND HOW DOES IT DIFFER FROM TODAY: The Closing Disclosure, also referenced as the CD, under the new rule is a five page document replacing the HUD-1 and Truth in Lending. The Closing Disclosure provides a detailed account of the real estate transaction and was designed to mirror the Loan Estimate to allow consumers to easily compare the two disclosures. The CD combines the HUD-1 and TIL Disclosures of today. The five page disclosure also includes a cash to close table comparing the Loan Estimate and Closing Disclosure and loan disclosures to include Late Payment charges, Partial Payments, Adjustable Interest Rate (AIR) and Adjustable Payment (AP) Tables, Appraisal disclosure, Liability after Foreclosure and Contact Information for all parties involved in the transaction. The CD is dynamic, meaning, tables pop in and out of the disclosure based upon the product and program types and what is required to be disclosed for each. Generation of the CD is heavily reliant upon technology as well as knowledge on the part of our internal teams. Training is a top priority to ensure we are meeting the requirements and all team members are educated to know what and when specific information is required to ensure an accurate CD is issued. Dedicated HUD-1 lines are a thing of the past. Fees no longer have specific or dedicated line numbers. Instead all fees, within categories, must be alphabetized; therefore, line numbers will change depending upon the fees collected at closing. Fee Names must be consistent from the LE to the CD. FCM will have a required list of fee names and all fees must be encompassed into the fee names provided by FCM. The CD does not have a Comparison page to determine tolerance and if tolerance items have changed (as discussed in TRID Topics V). 10% tolerance will now be tracked throughout the loan process and not just at closing. CIC s must still be completed within compliance as changes occur, but the LE used at closing to determine 10% tolerance will be based upon at what point the 10% threshold was exceeded and not solely upon the last disclosed LE. The Creditor is now responsible and liable for the entire Closing Disclosure. Today, Settlement Agents are liable for the RESPA content (itemized list of settlement charges) of the HUD-1. As the creditor, we are currently liable for the TIL, but under the new rule we will be responsible for the content of the CD in its entirety.
LOAN ESTIMATE vs. CLOSING DISCLOSURE- Breakdown by Page: The LE and CD were designed to mirror each other; however, there are some notable differences between the two disclosures. Below is an overview of each page of the Closing Disclosure and how it compares to the LE: Page 1 of the LE and CD are the same. Page 1 includes a title statement about the purpose of the form, header information, loan terms, projected payments and costs at closing tables. The most distinct difference from the LE to the CD is the actual figures vs. rounding on the LE in the payment calculation, escrows and costs at closing. Page 2 of the LE and CD are comparable; however, the CD has additional detail. Page 2 is the Closing Cost Details section. Closing Costs are organized in the same way from the LE to the CD; however, additional detail is required on the CD to denote who is paying the fee at closing as well as subcategories. Additionally, unlike the LE, blank lines can be moved from different categories and loan costs and other costs can be disclosed on 2 pages, if needed.
Page 3 of the LE and CD have different information however the calculating cash to close table on the CD is generally the same as the cash to close table on the LE page 2. The CD also features a Summary of Transaction which looks very similar to the current HUD-1 page 1. Page 4 of the CD includes disclosures required by TILA including some new disclosures added to TILA by Dodd-Frank. Page 4 also includes the AIR and AP tables from page 2 of the LE, as applicable for specific products. If AIR or AP tables are not required, the bottom of page 4 will be left blank.
Page 5 of the CD does not reflect any information from the LE. Page 5 is composed of additional TILA disclosures, Loan Calculations including the new Total Interest Percentage (TIP) and contact information for Lenders, Brokers, Real Estate and Settlement Agents. Other changes from LE to CD include rounding requirements. Rounding of numbers in certain tables is required on the LE but the CD must be actual figures. Rounding will be covered in a future TRID Topic. Side by side Current/New comparisons: http://www.consumerfinance.gov/knowbeforeyouowe/compare/ TIMING & DELIVERY: Under the new rule, there is a new 3 day waiting period from receipt of the CD by the consumer(s) to the actual closing date, also known as the note or consummation date. The CD waiting period is based on specific business days. Specific business days include Monday-Saturday, excluding Sundays and federal public holidays. Timing is a significant change and will have a great impact on the way we do business in closing at this time. The closing clock does not start ticking until we, the creditor, have received proof of receipt of the CD by the consumer. Issuance of the CD to a consumer and proof of receipt required depends on the type of transaction: A purchase or non-rescindable transaction, the CD must only be issued and proof of receipt received by the primary consumer. A refinance or rescindable transaction, the CD must be issued to EACH consumer who has the right to rescind; this includes non-purchasing spouses. The new 3 day waiting period will change required timing of submissions to Closing. Additional time will be needed to ensure accurate time to audit, generate the CD/documents and issue the CD to the consumer(s) for proof of receipt to meet the 3 day timing requirement. Same Day rushes will become a thing of the past. Loan Officers and Processors will need to work their pipelines to meet closing submission requirements in order to meet contract closing dates.
Delivery is important to guarantee the CD is received by the consumer(s) in time to meet the specified closing date. The TRID committee, along with sales, is determining the fastest and most accurate way of delivery. Options include e-delivery, in person receipt and mailing. E- delivery with a proof of receipt signed by the consumer(s) is the best option; however, is not feasible for all consumers. In this case, the disclosure would need to be delivered in person and require involvement on the part of the Loan Officer or Business Partner to acquire a same day signature. If e-delivery or same day signature is not available, the disclosure would be mailed. Mailed disclosures can be costly both in time and money. Mailing disclosures increases the waiting period to 6 days. The increase in waiting period days will push up the timing of submission to closing. HOW AND WHAT CHANGES WILL REQUIRE A NEW 3 DAY WAITING PERIOD: There are 3 hard and fast reasons a new 3 day waiting period would apply if a change occurred after the CD had been received by the borrower. 1. The APR increases by more than 1/8 of a percent for fixed-rate loans or 1/4 of a percent for adjustable loans. A decrease in APR will not require a 3-day review if it is based on changes to interest rate or other fees. 2. A Pre-payment penalty is added (FCM does not currently charge pre-payment penalties). 3. The basic loan product changes, such as a switch from fixed rate to adjustable interest rate. If none of the 3 above are affected then a change and re-disclosure of the CD is permitted. However, the borrower has a one-day right to inspect, meaning, all changes should be completed and the final CD
issued at least 1 business day prior to consummation. Keep in mind, once a CD has been issued, an LE can no longer be issued for changes. A CIC can be done with the Closing Disclosure but depending upon the scope, changes can trigger a new waiting period and cause closing delays. WHAT IS CHANGING IN OUR CLOSING DEPARTMENT Currently, FCM Closers send closing instructions to Settlement Agents to complete the HUD-1. The HUD-1 is then sent back to the Closer for review, changes and approval. This process can be cumbersome depending upon the knowledge of the Settlement Agent we are working with. With the change and the new liability on the creditor, FCM has made the decision to complete and issue the borrowers Closing Disclosure. However, our Settlement Agent Partners will be responsible for completing the sellers Closing Disclosure. With this change, the Closing Department will need advance information from our Settlement Agents. In order to quickly and accurately issue a CD, Closing will have a new list of required closing documents/information which must be present with submission to Closing. IMPORTANCE OF VENDOR MANAGEMENT FCM currently has a vast list of approved Settlement Agents. With implementation of the new rule the Closing Department is reaching out to our Top Agents for input in creation of our policies and procedures. Our goal is to streamline our process and ensure our Settlement Agent partners understand our expectations. Along with this, it will be imperative we monitor workmanship, customer service and overall performance of our Settlement Agents on a regular basis. WHAT TO EXPECT FROM CLOSING IN THE NEXT COUPLE MONTHS Communication and visual aids on timing and delivery List of new required documents/information Additional training for our Business Partners, Settlement Agents and FCM Team Members ADDITIONAL RESOURCES: Additional compliance resources can be found at the CFPB website at: http://www.consumerfinance.gov/regulatory-implementation/tila-respa/