Earlier this month (1), the CFPB and the Federal Reserve co-hosted a webinar to help us get up to speed on the upcoming mortgage application and closing rules. I am sure you know about the new disclosures, but these government agencies have spent so many resources legislating and making the information available to us that I imagine there will be little margin for error comes August 2015. If you have doubts, let me note the CFPB has been quite active fining financial services providers who have violated recently enacted rules. What I am trying to communicate is that we better have a good idea of what is expected of us as lenders, loan officers, and mortgage brokers; in short, everyone who is involved in the selling of mortgage products. I have synthesized the main points regarding the new disclosure rules. Still, the topic is extensive, and I divided the information in three parts. Part one, this post, covers the new Loan Estimate Disclosure; part 2 , covers pre-application and other disclosures. You see? It already sounds daunting, but dont worry, the topics are actually quite digestible and a light read if you are in the mortgage industry. So lets get to it.

THE NEW LOAN ESTIMATE (2)

The current mortgage application disclosure forms Initial Truth in Lending and the RESPA Good Faith Estimate (GFE) disclosures will be combined into one single form, the Loan Estimate disclosure. The purpose of the estimate is to help consumers understand and evaluate a loan offer. Regulators and consumer advocates expect this form will make it easier for consumers to appraise the costs and terms of a loan offer.

STRUCTURE OF THE LOAN ESTIMATE

The Loan Estimate contains general information about the applicant, and lists all costs related to the transaction:

• loan costs
• other costs
• calculated cash at closing
• adjustable rate table (if it applies)
• adjustable payment table (if it applies)
• lender/loan officer/mortgage broker information
• a table to facilitate the comparison of the offer with other offers
• any other relevant information
• area for optional applicants signature to confirm receipt of the estimate

ALTERNATIVE LOAN ESTIMATE FORMAT

An alternative Loan Estimate may be used when the transaction has no seller

TIMING REQUIREMENTS

The Loan Estimate must be given to the applicant no later than 3 business days from the time of application. If the estimate is not given to the borrower in person, the applicant is considered to have received this disclosure 3 days after it was delivered or mail stamped.

Within the mortgage application context, a business day is defined as a day in which the lender is opened for business and carrying all business operations.

LOAN ESTIMATE TO FINAL CLOSING CHANGES LIMITATIONS

If charges paid by the consumer exceed the amount originally stated in the Loan Estimate, the estimate is considered not in good faith, with certain exceptions. This applies even if the creditor discovers a technical error, miscalculation, or underestimation of a charge, and some of these changes will be subject to extended waiting periods for the revision of information by the borrower.

CHANGES LIMITATIONS

Changes may be made without the loss of the good faith estatus for these:

• prepaid interest increase
• property insurance premium increase
• amounts placed into escrow increase
• reserve or similar account increase
• impound
• services/products required by the lender, but the borrower is permitted to freely choose a third party provider, and chooses a third party provider not affiliated to the lender
• services/products consumed by the borrower and not required by the lender

If these items increased by more than 10%, the estimate will lose the good faith status:

• recording fees
• charges for services/products required by the lender, and when the borrower chooses a third party provider suggested by the lender or affiliated to the lender

These items may not change from the Loan Estimate to the Closing Transaction. It any of these changes, the estimate will be considered a no good faith estimate

• lender/mortgage broker fees
• charges to third party services which have to be paid directly to the lender, or its affiliates
• transfer taxes

REVISIONS AND CORRECTIONS TO LOAN ESTIMATES

Acceptable changes to the estimate can be made under the following circumstances:

• disrupting events outside of the control of lender/borrower
• war
• natural disasters
• borrower information was inaccurate or changed after the lender issued the estimate
• there is material new information about the borrower; information not used when the application was processed
• the consumer requested a revision
• consumer requests to lock interest rates, and this causes a change in the fees/rates disclosed in the estimate
• the applicant expresses intent to proceed with the transaction 10 days after the estimate is considered delivered
• a construction loan for which settlement is delayed

Well, I hope I made it easy for you to get familiar with the new Loan Estimate Disclosure. I think the information is not that different than is included in the current disclosures, but indeed is organized in a more consumer friendly format. I agree with regulators in their thinking that including the estimated cash to close information helps borrowers during the closing, and also with their thinking that itemizing and categorizing information helps borrowers understanding of overall structure of the financial responsibility they are about to undertake.

New Loan Est: http://files.consumerfinance.gov/f/201312_cfpb_tila-respa_loan-estimate.pdf

Upcoming rule details: http://www.consumerfinance.gov/regulatory-implementation/tila-respa/

PART 2

PART 3

1) June 17th, 2014 http://www.cfpbmonitor.com/2014/06/19/cfpb-provides-guidance-on-the-tila-respa-integrated-disclosures-rule/

2) http://www.philadelphiafed.org/bank-resources/publications/consumer-compliance-outlook/outlook-live/2014/061714h.pdf#page=2

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