by Barbara Strapp Nelson, Esq.
If you are submitting a home mortgage loan application on August 1, 2015, or thereafter, you will be entitled to new protections mandated by the Consumer Financial Protection Bureau (CFPB), an entity created by the Dodd Frank Act to protect consumers in residential mortgage loan transactions. These protections, which come in the form of disclosures, are required in connection with “a closed-end consumer credit transaction secured by real property other than a reverse mortgage…” 12 CFR Sect. 1026.19(e)(1)(I) and (f)(1)(I) are set forth in the TILA-RESPA Integrated Disclosure Final Rule. “Consumer credit” refers to credit offered or extended to a consumer primarily for personal, family or household purposes.
The new process involves two new forms of disclosures: a loan estimate, which summarizes the loan terms and transaction costs so that consumers can shop around for their home financing, and a closing disclosure, which will replace the HUD-1 settlement statement and the final truth-in-lending disclosure.
These new procedures may affect potential borrowers, as delays in the closing process may occur as lenders, mortgage brokers and title companies (which frequently act as settlement agents) implement the necessary procedures to comply with the new requirements — and “get up to speed” with the new regulations. Additionally, closings may take longer to occur due to new waiting periods associated with loan estimate and closing disclosure requirements imposed on the lenders, mortgage brokers and settlement agents.
Under the new loan procedures, a loan estimate must be provided by a lender or mortgage broker to a borrower within three business days after the complete loan application is submitted.
A closing disclosure must be delivered to the consumer by the lender or settlement agent at least three days prior to the loan being consummated, usually at closing. If changed in certain respects prior to closing, a revised closing disclosure may be required to be delivered with an additional three-business-day waiting period before closing can occur.
The CFPB does not expect the three-day requirement to interfere with a successful closing. There are only three circumstances that would impose a new three-day waiting period: certain increases to the APR; the addition of a prepayment penalty; or a change in the basic loan terms (e.g., moving from a fixed-rate loan to a variable rate one). Issues raised on a final walk-through that may affect the sale terms or require a seller credit may require a new closing disclosure, but will not require a three-day waiting period.
The figures on the closing disclosure fall into three categories: no limit charges; 10 percent aggregate variance charges; and zero variance charges. Delays may occur if certain of these figures vary from those in the loan estimate. No limit charges include prepaid interest, property insurance premiums, amounts placed into an escrow impound and services required by the lender; and fees paid by third-party providers for services not required by the lender. These can vary without the need for any new disclosures.
Ten percent aggregate charges consist generally of recording fees and charges for third-party services where the charges are paid to the lender of lender’s affiliate; or the consumer is permitted by the lender to shop for the third-party service, but selects a provider from the lender’s written list of approved service providers. These cannot vary by more than ten percent.
Finally, charges that are not permitted to change include transfer taxes, fees paid to the lender, mortgage broker or affiliate of the lender, except that charges paid for a third-party service not required by the lender, may be paid to an affiliate of the lender, fees paid to an unaffiliated third party if the lender did not permit the consumer to shop for a third-party service provider.
These regulations do not apply to home equity lines of credit, reverse mortgages, or cash transactions.
Due to these new requirements on lenders and settlement agents, be aware that there may be delays in the closing process particularly during the first few months following August 1, 2015.
Barbara Strapp Nelson is a Shareholder and member of Stark & Stark’s Real Estate Group, where she concentrates her practice in residential real estate transactions. She has over 30 years of experience in residential as well as commercial real estate transactions and related zoning and planning issues. She has represented individuals and developers in their real estate transactions.
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