Truth in Lending

Best Practices In A New TRID World

by Rich Vetstein on October 18, 2015

in Closings, Massachusetts Real Estate Law, Offer To Purchase, Purchase and Sale Agreements, TRID, Truth in Lending

Scroll Down For My Complimentary TRID Rider and Offer Timeline Cheatsheet

I’ve been doing a lot of speaking, and more importantly, thinking and collaborating with loan officers and Realtors, on the impact of the new TRID (Truth in Lending RESPA/Integrated Disclosure) on Massachusetts residential real estate transactions. I know everyone is pretty much burned out with all this TRID talk, but what I will give you in this post is some hands-on, practical advice (like how to fill out an Offer) and forms to help you navigate TRID — best practices, if you will.

Those who are unfamiliar with TRID, the major change is that the Good Faith Estimate is going away in favor of a new “Loan Estimate” and the HUD-1 Settlement Statement is going away in favor of a new “Closing Disclosure.” TRID provides for specific deadlines as to when the Loan Estimate and Closing Disclosure must be delivered to the borrower. If those deadlines aren’t met, closings can be delayed for up to 7 days. For my comprehensive post on the new rules click here.

trid 1 copyChange In Deadlines

The first major impact to real estate transactions will be the length of time to complete a transaction. The general consensus is that post-TRID, 60 day closings (from accepted offer) will be the norm. Will lenders be able to do 45 day closings? Yes, but only if all parties have their act together, and that’s a big “If.” Thirty (30) day closings will be nearly impossible to achieve, in my opinion.

So what does this mean? It means that all deadlines need to be tighter and that items typically left for the week or two prior to closing (like final readings and fuel adjustments) have to be done earlier in the transaction and closing table adjustments will be impossible.

Deadline to Submit Info For Closing Disclosure

trid 3 copyOne of the most important new dates will be the date on which all parties must provide the information necessary for the Closing Attorney and the lender to prepare the final Closing Disclosure (new HUD-1). TRID requires that the new Closing Disclosure issue to the borrower 3 days prior to closing (if sent electronically) or 7 days prior to closing (if sent by mail). Lenders will require all information necessary to prepare the CD well before this deadline. This will vary by lender anywhere from 10-20 days prior to closing. Also, some lenders intend to issue the Closing Disclosure along with the Loan Commitment. Accordingly, in my opinion the best practice under TRID is to target 20 days prior to closing by which all information needs to be submitted to the closing attorney. All parties should agree to this date in their purchase and sale agreements.

And by all information, what do I mean? See the graphic to the right. closing info copy

Final Utility Readings and Oil/Fuel Adjustments

Although the TRID rules specifically allow for some last minute changes to the Closing Disclosure without triggering re-disclosure and delay in the closing, most of the lenders which I’ve consulted with do not intend to authorize last minute changes to the Closing Disclosure which might trigger a re-disclosure delay.

Given this, the Mass. Real Estate Bar Association (REBA) has proposed language in its new TRID rider that all utility readings (water, sewer, oil/fuel) be completed and submitted to the closing attorney no later than 10 days prior to closing. The Closing Disclosure shall reflect payment and adjustments as of the reading date except for real estate taxes which shall be adjusted as of the closing date. No further adjustments will be made on the Closing Disclosure, but the parties are free to make their own estimates of utilities as of the closing date.

This is a change to current practice where it’s common that the final readings be done a day or two prior to closing. I’ve spoken to several agents about oil fuel in particular, and they all say they really don’t want to deal with the hassle under TRID, so they will be recommending to their sellers that they simply gift the oil to the buyer.

Opt for Buyer Credits Instead of Seller Repairs

Seller repairs will cause major hassle and potential delays under TRID. Under TRID, all property repairs must be fully disclosed in the purchase and sale agreement and to the lender. No more “side agreements” or “repair agreements” outside the PS Agreement. Most lenders will require an inspection of all repairs prior to closing and some will do the inspection prior to the issuance of the Closing Disclosure. This would also necessitate a much earlier walk-through by the buyer to inspect those repairs. If there are problems with the repairs, or the insistence on a holdback which would be reflected on the Closing Disclosure, this could delay the issuance of the Closing Disclosure, and therefore delay the closing.

Accordingly, the general consensus is that it will be much cleaner under TRID to forgo seller repairs and instead have the seller agree to a closing cost credit to the buyer. This will eliminate the lender inspection, additional walkthrough and potential of delays.

Also, a quick word about holdbacks at closing. We are not sure how lenders will handle holdbacks at the closing but many of us are of the opinion that lenders will not allow a holdback unless it’s disclosed on the Closing Disclosure. So that effectively means no closing table holdback agreements unless you want your closing delayed to re-issue the Closing Disclosure.

Use a TRID Rider/Addendum for all Offers

MAR, GBREB and REBA have all come out with their own TRID riders. In my opinion, the MAR/GBREB riders don’t sufficiently protect buyers from delays and they fail to address utility/fuel adjustments. The REBA rider is better, but could still use some improvement. So naturally I’ve drafted my own rider (and TRID timeline cheatsheet) which is embedded below. Feel free to use it to help you fill out offers. Whatever rider/addendum you chose, just use something, otherwise your buyer will be at risk of losing their deposit over TRID delays.

Recommend Attorneys Who Specialize In Conveyancing/Closings

Residential real estate closing work was already complicated and highly regulated. In a TRID world, the pitfalls for the inexperienced and non-specialists will be myriad. Now more than ever, Realtors and loan officers should partner with experienced attorneys who specialize in residential closings and are TRID ready and compliant. Do not allow your clients to use their cousin who is a lawyer and knows very little about real estate. It could be disastrous for you and your transaction.

If you have any questions about TRID, Offers, Purchase and Sale Agreements, Riders, etc., please feel free to contact me at [email protected] or 508-620-5352. I would be happy to help you navigate the TRID maze.

TRID – Massachusetts Offer to Purchase Timeline and Addendum by Richard Vetstein

{ 3 comments }

TRID Rules Prompt Changes To Mass. Standard Form Purchase and Sale Agreement

by Rich Vetstein on September 28, 2015

in Closings, Consumer Financial Protection Bureau, Massachusetts Real Estate Law, TRID, Truth in Lending

TRID-1MAR and GBREB Release New TRID Addendum In Advance Of Oct. 3 Start Date 

In anticipation of the upcoming October 3 start date for the new CFPB-TRID Rules (TILA-RESPA Integrated Disclosure), the Massachusetts Association of Realtors is advocating that several changes in existing practice be adopted as part of the MAR standard form purchase and sale agreement between buyer and seller. The changes, incorporated into a new Integrated Disclosure Addendum-Mortgage (embedded below and available to all MAR members by clicking here), will account for the risk of potential delays resulting from the new TRID rules, as well as impose a requirement on all parties to expedite providing information necessary to generate the new Closing Disclosure. For a comprehensive review of the TRID rules, click here.

Under TRID, there will be a new settlement statement called a Closing Disclosure, which must be issued to the borrower at least 3 days prior to closing. If that does not occur, the closing will be delayed for up to 7 days. Lenders are requiring that the information contained in the Closing Disclosure (fees, closing costs, taxes, insurance, escrows, credits, etc.) be finalized no less than 7-14 days prior to closing, to give them enough time to generate the new Closing Disclosure in a timely fashion. As with any major regulatory change such as this, we can expect delays and speed bumps for closings occurring after Oct. 3.

The new MAR Addendum attempts to allocate risk and responsibility by providing that:

  • The buyer provides the seller with the name of the lender’s attorney as soon as practicable and no less than 14 days prior to closing
  • No fewer than 7 days prior to closing, the Seller and Buyer must provide all adjustments and figures (water/sewer, condo fees, taxes, oil in tank, etc.) necessary to prepare the Closing Disclosure. *I would change this to 14-20 days prior to closing. 
  • The closing can be extended up to 3 business days in case of a TRID related delay. *I would change this to 8 days. 
  • No party can sue each other for TRID related delays

Practice Pointer: I do not think the MAR form goes far enough to account for the potential delays arising out of TRID. For example, if the lender does not use e-sign technology the Closing Disclosure would have to be mailed, and the closing would be delayed for 7 days, not 3 days. Moreover, lenders are advising me that they want all Closing Disclosure information in by 20 days pre-closing, so they can turn around the loan commitment and Closing Disclosure at the same time and have a buffer in case of last minute changes. Most importantly, please use some form of TRID addendum to your Offers. Do not wait for the P&S.

Please click here for my customized TRID Addendum and TRID Offer Timeline

Note that the Greater Boston Real Estate Board standard form purchase and sale agreement is still in wide use. The GBREB has released their own version of the TRID rider, available here.

Integrated Disclosure Addendum (c) 2015 Watermark by Richard Vetstein

{ 5 comments }

TRID Rules Expected To Delay and Disrupt Closings

by Rich Vetstein on July 31, 2015

in Closings, Consumer Financial Protection Bureau, Fannie Mae, FHA, Massachusetts Real Estate Law, Purchase and Sale Agreements, Real Estate Taxes, Realtors, RESPA, TRID, Truth in Lending

TRID-1

Major Change To Current Practices | Expect Delays and Bumpy Road Starting Oct. 3

I just finished yet another closing where a national lender issued the closing documents the morning of the closing, and worse, issued a revised TIL (Truth in Lending) disclosure during the middle of the closing! Under the new TILA-RESPA Integrated Disclosure Rules (TRID) set to start on October 3, this too-common practice would have resulted in a closing delay of up to 7 days, to the dismay of everyone in the transaction.

The new TRID rules are game-changing regulations which threaten to disrupt and delay closings across the country. The new rules, already pushed back once due to industry outcry, go into effect in about 60 days on Oct. 3. I am very worried that lenders, Realtors and closing attorneys are not at all prepared for one of the most significant changes in how we do business. Experts are predicting that closings will be delayed, 60 day loan approvals will be the new normal, and new forms will bewilder buyers. “Expect a one- to two-week delay in closings,” said Ken Trepeta, director of real estate services of the government affairs branch for the National Association of Realtors, when describing the impact of TRID.

Check out my latest article: Best Practices In A New TRID World

Currently, we are finishing one of the strongest spring markets in a decade, but I’m quite concerned that come Fall, the new TRID rules will put the fall market into an ice bath. The best thing that every real estate professional can do is get educated and get prepared now for these changes. August is typically a slow month, so use it to get ready. My team will be doing a roadshow Powerpoint seminar to any local real estate office to explain the new changes. Contact me at [email protected] for more info.

New Closing Disclosure Replacing the HUD-1 Settlement Statement: 3 Day Rule

Under TRID, there will be a new settlement statement called a Closing Disclosure, which must be issued to the borrower at least 3 days prior to closing. If that does not occur, the closing will be delayed for up to 7 days. We are hearing that lenders will require that the information contained in the Closing Disclosure (all fees, closing costs, taxes, insurance, escrows, credits, etc.) be finalized as early as 20 days prior to closing, to give them enough time to generate the new Closing Disclosure in a timely fashion and to account for delays.

What does that mean for us professionals? It means that everything will need to be pushed up and done faster than before. That goes for titles, CPL’s, broker commission statements, invoices for repairs, insurance binders, condo fees, recording fees, title insurance, everything. And it means we can all expect delays as everyone adjusts to the new timetables and rules.

Practice Pointer: Click here to get my new TRID addendum/rider. 

What Forms Will Be Signed At Closing?

Lenders will require the new Closing Disclosure (embedded below) be signed by the borrower at closing. However, although the Closing Disclosure was intended to replace the current HUD-1 Settlement Statement, the geniuses at CPFB neglected to put a signature line for the sellers on the new Closing Disclosure. I’m not making this up. And we are no longer supposed to use the “old” HUD-1 Settlement Statement. Thus, our title insurance companies are telling us that there may be three settlement statements signed at closing: a Closing Disclosure for the buyer, a Closing Disclosure for the seller, and a combined Closing Disclosure. ALTA has created a new Combined Settlement Statement which can be found here.

Bank of America was asked whether it would require the use of the ALTA model forms, and it stated in a June 9 memo that it prefers the ALTA model if a closing attorney chooses to use a settlement statement to supplement the Closing Disclosure (CD), but specified that the settlement statement figures must reconcile to the CD and a copy of the settlement statement must be provided to the bank. The bank also stated that all revisions to fees and costs will require bank approval and an amended CD. In other words, closing attorneys will not be allowed to revise fees and costs by simply supplementing the CD with a settlement statement.

60 Day Approvals/Closings The New Normal?

With any historic change to how lenders disclose fees and approve loans, there’s going to be a steep learning curve — and delays. You can count on that. Industry insiders say the days of 30 and even 45 day loan approvals may be over, at least temporarily. Sixty (60) day approvals may be the new normal, and agents should build the longer timeframe into their offers and purchase and sale agreements and educate their buyers and sellers accordingly.

Repairs and Walk-Throughs

Since lenders will require all fees and credits finalized 7-10 days prior to closing, this will significantly impact how we handle repairs and credits. Agreed upon repairs also affect how the appraisal is conducted which will further impact the timelines. Experts are suggesting that Realtors consider doing walk-throughs at least 14-21 days prior to closing instead of the typical day before or day of walkthrough, because all repair issues and credits should be set in stone at least 7-10 days prior to closing and changes in fees and credits on the day of closing will not be permitted by the lender. Some experts are even saying that agents should do two walkthroughs, one within the TRID timelines and one immediately prior to closing. Also, under TRID paid outside closing (POC) items will be discouraged by lenders.

Take-away:  Realtors should be warned that repairs contained in the purchase and sale agreement will have the potential to delay closings under the TRID rules. Ensure that any repairs are completed 14-21 days prior to closing. Better yet, don’t have the seller make repairs at all; use closing cost credits instead. 

No More Back to Back Closings?

Due to the high potential for delays caused by TRID, back-to-back or piggyback closings may be a thing of the past, at least for now. A delay with a closing obviously has a domino effect on a back to back closing. The best practice, at least for the first few months of the new TRID era, is to schedule closings at least 3 days apart. Seller/buyers will have to prepare for this reality with bridge loans, use and occupancy agreements, or temporarily staying with your nearest relatives.

1416821334979Partner with Trusted and Verified Providers

Now more than ever, Realtors are going to want to partner with lenders and closing attorneys who have been vetted and verified as fully compliant with the TRID rules, so there will be minimal disruption and delay on their transactions. Realtors and loan officers should ask their closing attorneys whether they are compliant with the ALTA (American Land Title Association) Best Practices, which is quickly becoming the standard for TRID compliance. Under the ALTA Best Practices, the attorney will have passed an intensive initial due-diligence screening, a third-party internal audit, background and credit check, extensive review of applicant’s experience, business model and policy loss history, and licensing verification. The closing attorney should also have secure document encryption capabilities and privacy/technology policies in place. My office has been vetted and verified by Stewart Title which has a comprehensive website on the TRID rules. If your buyer wants to use his personal attorney who does not specialize in real estate, explain to him or her why that is a mistake which could ultimately delay the closing. 

Bumpy Road Ahead?

In my opinion, the TRID rules are the biggest change to the industry in 20 years, and will be much more difficult to implement than the new GFE and 3 page HUD of several years ago. As discussed above, my team will be doing a roadshow Powerpoint seminar to any local real estate office to explain the new changes. Contact me at [email protected] to schedule your complementary seminar.

More information:

Mass. Ass’n of Realtors Webinar on TRID with Ruth Dilingham, Special Counsel
National Ass’n of Realtors Webinar with Phil Schulman
Old Republic Title FAQ on TRID
CFPB Monitor TRID FAQ
CFPB Webinar Rebroadcast May 2015

CFPB Closing Disclosure by Richard Vetstein

{ 10 comments }

TRID Compliance Start Date Pushed Back To Oct. 1

by Rich Vetstein on June 18, 2015

in Consumer Financial Protection Bureau, Mortgages, RESPA, Truth in Lending

CFPB.pngCFPB Responds To Industry and Consumer Concerns On New Compliance Rules

The Consumer Financial Protection Bureau announced on Wednesday a proposal to delay the effective date of the TILA-RESPA Integrated Disclosure rule until Oct. 1. The rules were originally set to go into effect on Aug 1.

These new forms consolidate the TILA-RESPA and HUD-1 forms and are meant to give consumers more time to review the total costs of their mortgage. Of particular concern to the mortgage industry is the new rule’s requirement that the Closing Disclosure (new HUD-1) is due to borrowers three days before closing. These rules have thrown the mortgage industry into a frenzy as they try to comply by the deadline, and threatened to delay closings during the busy fall real estate market.

CFPB Director Richard Cordray said that “we further believe that the additional time included in the proposed effective date would better accommodate the interests of the many consumers and providers whose families will be busy with the transition to the new school year at that time.”

The required loan documentation consists of two new forms: the Loan Estimate and the Closing Disclosure to ensure compliance.

This is good news for the mortgage lenders and real estate conveyancers as we continue to work on achieving full compliance with the new forms and rules.

{ 0 comments }

Massachusetts Real Estate Law Outlook for 2015

by Rich Vetstein on January 1, 2015

in Closings, Consumer Financial Protection Bureau, Housing Court, Landlord Tenant Law, Massachusetts Real Estate Law, Permitting/Zoning, Realtors, Refinances, Truth in Lending, Zoning

massachusetts condominium super lienWe had another interesting year in Massachusetts real estate law. From that controversial $60,000 discrimination penalty for asking a prospective renter “where are you from?”, to the influx of Airbnb rentals, to the tragic murder of Realtor Beverly Carter during a showing, and finally Gov. Patrick’s disappointing scuttling of the title clearance bill.

With pro-business Charlie Baker in the Governor’s Office, the fate of the independent brokerage model with the Supreme Judicial Court, and significant regulatory changes to title and closing services, we should expect another eventful year in 2015. Without further ado, I give you my outlook for 2015:

The Charlie Baker Effect

Gov. Deval Patrick was no friend to the real estate industry, often kowtowing to ultra-liberal activists. Case in point was when he killed the title clearance bill which had broad support within the Legislature and would have helped hundreds of homeowners get out of toxic titles. A new era is here with Republican and former CEO, Charlie Baker. Hopefully the Governor Elect will be more supportive of homeowners, developers, real estate agents, lenders and others in the industry. On the legislative table this year will be comprehensive “smart” zoning reform (including 40B affordable housing development reform), another effort at the title clearance bill and maybe even landlord-tenant legal reform.

Will Realtors Be Treated As Employees or Remain Independent Contractors?

The SJC should decide the closely watched case of Monell v. Boston Pads, a class action brought by a group of disgruntled real estate agents at Jacob Realty claiming they should be treated as employees instead of independent contractors. Hanging in the balance is the fate of the historically independent, commission based real estate brokerage office model. An unfavorable result at the SJC would essentially turn this model upside-down, requiring brokerages to pay their agents minimum and overtime wages and provide all the statutory benefits afforded to employees. The real estate office as we know it today would likely cease to exist.

CFPB Compliance: New HUD-1 Statement, GFE, TIL, Back Office Procedures

The new Consumer Financial Protection Bureau rules, which go into effect this summer, have the potential to drastically change how loans are disclosed and transactions closed, affecting loan officers, Realtors and closing attorneys alike. Gone are the Good Faith Estimate, Truth in Lending Statement (TIL) and HUD-1 Settlement Statement, replaced with a longer Loan Estimate and Closing Disclosure. The disclosure timetables will be much, much stricter — the final Closing Statement must be given to the borrower no later than three business days before closing. Lenders and closing attorneys will have to work more efficiently and quicker to meet these new deadlines. Closing attorneys who are ALTA Best Practices Certified will have a competitive advantage over those who aren’t. Smaller firms could fall by the wayside.

Housing Court Expansion

This year will likely see the expansion of Housing Court jursidiction state-wide including in Middlesex, Norfolk and Barnstable counties. The Housing Court will be available in high density rental towns including Cambridge, Framingham, Brookline, Waltham, Dedham, Malden and Somerville.

I hope you all have a happy, healthy and prosperous New Year!

{ 2 comments }

CFPB Issues Final Lending and Closing Disclosure Forms

by Rich Vetstein on November 20, 2013

in Closings, Consumer Financial Protection Bureau, Disclosures, Electronic Closings, Fannie Mae, HUD, Massachusetts Real Estate Law, Mortgages, RESPA, Truth in Lending

CFPB.pngCFPB Issues Long Awaited “Know Before You Owe” Mortgage Disclosures, Replacing Truth in Lending, Good Faith Estimate, and HUD-1 Settlement Statement

As part of a continuing overhaul of the home mortgage market, the Consumer Financial Protection Bureau today issued a final rule to bolster fairness and clarity in residential lending, including requiring a new good faith estimate of costs for homebuyers, Truth in Lending disclosure and a new HUD-1 Settlement Statement.

The new Loan Estimate will replace the current Good Faith Estimate (GFE) and the current Truth in Lending Disclosure (TIL). The new Closing Disclosure will replace the current HUD-1 Settlement Statement. The new forms are embedded below.

The real estate industry will have 20 months to implement the new disclosures, by August 1, 2015. The CFPB website has a summary of the new rules and disclosures here.

Initial Impressions, Did The CFPB Finally Get It Right?

Overall, I would say that the forms are a major improvement over the existing disclosures, especially the Truth in Lending disclosure. I always joke that the Truth in Lending disclosure should be called “Confusion in Lending” (which usually gives the borrower a chuckle) as it’s nearly impossible to explain even for a trained attorney and sophisticated borrower. That may be rectified now with the new forms — although I still may employ the joke!

The new HUD-1 Closing Disclosure is a longer and more involved form, but it basically just reorganizes all of the information now contained in the current 3 page HUD-1 Settlement Statement, and it appears to be easier to read and explain at the closing table.

The CFPB says that the new forms will replace the existing forms, resulting in a decrease in pages to review — which is a minor miracle in and of itself. A common complaint from borrowers is the sheer number of forms and disclosures signed at the closing, so this is welcome news.

3 Business Day Rule May Be Problematic

As Bernie Winne of the Massachusetts Firefighters Credit Union testified at the announcement hearing today in Boston, the new requirement that the Closing Disclosure (new HUD-1) be provided to the borrower within 3 business days of the closing may pose a problem in some transactions and will certainly result in a major adjustment in current practices. There are often last minute changes in closing figures, seller credits, holdbacks, payoffs, etc., which result in last minute changes. Hopefully, the CFPB will realize this in the upcoming implementation period and relax the rules in certain circumstances. There has already been significant chatter on Twitter and the blogosphere about this new requirement.

Another encouraging note was CFPB Director Cordray’s comments today about the agency pushing for more electronic closings. Fannie Mae has done squat to push e-closings, so hopefully CFPB will take the lead in this important area!

Loan Estimate Disclosure

  • The new Loan Estimate will combine the disclosures currently provided in the Good Faith Estimate and the initial Truth in Lending statement.
  • Lenders must provide the Loan Estimate 3 business days after an application is submitted by a consumer, excluding days that the lender is not open (e.g., Saturdays).  However, it is not clear based from materials available thus far when a consumer has submitted sufficient information to constitute an “application.”
  • The Loan Estimate will conveniently provide for the monthly principal and interest payment, projected payments over the term of the loan, estimated taxes and insurance (escrows), estimated closing costs, and cash to close.
  • It will provide for a Rate Lock deadline.
  • The Annual Percentage Rate (APR) appears on page 3, despite requests by consumer advocates that it appear in a prominent location on the first page.  In addition, it appears that the Bureau did not adopt the proposal to revise the APR calculation to include more items in the finance charge and thereby potentially increase the number of loans that would fail the Qualified Mortgage’s points-and-fees test or would be treated as “high cost” or “higher priced.”

Closing Disclosure

  • The Closing Disclosure will combine the disclosures currently provided in the HUD-1 settlement statement and any revised Truth in Lending statement. It is now a 5 page document compared to the current 3 page document.
  • Critically, the Closing Disclosure must be provided at least 3 business days before the closing. Lenders and closing attorneys will have to adapt to this new requirement as currently we usually get the final HUD approved by the lender 24-48 hours before the closing.
  • Page 1 of the Closing Disclosure carries over much of the Truth in Lending information previously found in the TIL form.
  • Page 2 and 3 replicate the existing HUD-1 Settlement Statement (pages 1 and 2) outlining the fees and closing costs, adjustments, and commissions charged to the buyer and seller. It also contained a more extensive section on Cash to Close which will be helpful to explain.
  • Page 4 contains a nice easy-to-read section on the escrow account which is often challenging to explain to borrowers.
  • The last page is similar to the current page 3 of the HUD-1, providing a quick summary of the loan terms, interest rate, total payments and APR.

CFPB Loan Estimate

CFPB Closing Disclosure

{ 10 comments }

CFPB May Announce New GFE and HUD-1 Disclosure Rules In Boston On Nov. 20

by Rich Vetstein on November 13, 2013

in Closings, Consumer Financial Protection Bureau, Disclosures, HUD, RESPA, Truth in Lending

CFPB.png

Updated 11/20/13: CFPB Issues Final Mortgage Rules and Disclosure Forms (click here for more info)

A long awaited regulatory and compliance announcement may be coming to Boston next week.

The Consumer Financial Protection Bureau has announced that on November 20, 2013, it will hold a field hearing in Boston on the “Know Before You Owe: Mortgages” rules. Industry experts predict that CFPB will announce its long-awaited new Truth In Lending (TILA)-RESPA integrated disclosures final rule and forms.

The new rules and disclosures will result in another dramatic change in the Truth in Lending, Good Faith Estimate and HUD-1 Settlement Statement used by lenders and attorneys in residential purchase and refinance transactions. A new “Loan Estimate” would replace the current Good Faith Estimate (GFE) and the current Truth in Lending Disclosure (TIL). A new Closing Disclosure would replace the current HUD-1 Settlement Statement. Our prior post on the new closing disclosures can be found here.

The event will feature remarks by CFPB Director Cordray and testimony from consumer groups, industry representatives, and members of the public. The event will be held at the Back Bay Grand, Back Bay Events Center, 180 Berkeley Street, Boston, MA 02116. If I’m lucky enough to get an invite, I will be there and will report back on what happens.

{ 0 comments }

Lender/Settlement Agent Regulatory Alert: Nov. 6 Deadline to Prevent Proposed CFPB Disclosure Rule From Delaying Closings

by Rich Vetstein on November 4, 2012

in Closings, Consumer Financial Protection Bureau, Disclosures, HUD, Massachusetts Real Estate Law, RESPA, Truth in Lending

Mandatory 3 Business Day Waiting Period Will Delay Closings

Action Needed: Comment On Proposed Rule

While our attention has been diverted from more important issues such as Hurricane Sandy and the election, please be advised that November 6, 2012 is the last day for lenders, settlement agents, Realtors and the public to comment on the controversial new combined Truth and Lending/HUD-1 Disclosure rules proposed by the new Consumer Financial Protection Bureau (CFPB). For those who don’t know, the CFPB has proposed a major overhaul to closing disclosures, combining the Truth In Lending and the HUD-1 Settlement Statement into a single 5 page disclosure form.

Of paramount concern to the real estate community is the proposed Three Business Day Rule, which would require that lenders provide the final Closing Disclosure (the new HUD-1) at least 3 business days prior to the closing. The major problem with this rule is that if there are changes in settlement and closing figures between the time of disclosure and the closing, the consumer must be provided a new form, and the closing must be delayed for at least 3 business days. ((There is an exception for adjustments between buyer and seller, such as a repair credit and for items under $100.))

In today’s lending environment, last minute changes to settlement numbers are common, and given the crush of underwriting tasks, final closing figures are typically provided 24-48 hours prior to the closing, or even the day of closing. Moreover, there are often delays getting information from outside sources — real estate tax information from municipalities, insurance information from independent agents, final water/sewer readings, oil bills and 6d condo fees from Realtors, and payoffs from sellers — all of which are out of the control of the lender and the closing attorney.

If there are last minute changes to settlement numbers, the proposed rule will delay closings for at least 3 business days, which could be catastrophic. This will have an unintended ripple effect on both the borrower and other parties, especially where the borrower is doing a “sell-buy” on the same day.

The CFPB is out of touch with the real estate industry on this rule. Indeed, at a recent symposium on the new rules, the CFPB’s new general counsel was reported as being very surprised that last-minute changes in settlement figures were relatively common. Delaying closings for 3 business days through delays of no fault of the lender or settlement agent hurts all the parties to the transaction. The rule is regulatory overkill.

CLICK THIS LINK TO COMMENT ON THE NEW CFPB RULE (CLICK SUBMIT A FORMAL COMMENT)

Tell the CFPB that the 3 Business Day Rule is a bad idea, and give anecdotal stories about how delays in closings will affect your business. And please share this post with fellow lenders, mortgage bankers, closing attorneys and Realtors.

________________________________________________________

Richard D. Vetstein, Esq. is a Massachusetts real estate attorney with offices in Framingham and Needham, MA. You can reach him at [email protected].

{ 2 comments }

CFPB Releases New Mortgage Disclosures Replacing Good Faith Estimate, Truth and Lending Disclosure, and HUD-1 Settlement Statement

by Rich Vetstein on July 11, 2012

in Closings, Consumer Financial Protection Bureau, Disclosures, HUD, Massachusetts Real Estate Law, Mortgages, Refinances, Truth in Lending

Concise Disclosures Aimed At Reducing Borrower Confusion and Helping Comparison Shopping

As part of a continuing overhaul of the home mortgage market, the Consumer Financial Protection Bureau on Monday issued proposed rules to bolster fairness and clarity in residential lending, including requiring a new good-faith estimate of costs for homebuyers and a new closing settlement statement.

My understanding is that the new “loan estimate” would replace the current Good Faith Estimate (GFE) and the current Truth in Lending Disclosure (TIL). The new closing disclosure would replace the current HUD-1 Settlement Statement. The new disclosures are open to industry and public comment for 120 days, after which they will be finalized and codified as law. For more details on the new disclosures, go to the CFPB site here.

Here is the new Loan Estimate.

201207 Cfpb Loan-estimate

Here is the new Closing Disclosure

201207 Cfpb Closing-disclosure

I’m interesting in hearing comments on the new forms from mortgage professionals, real estate attorneys and borrowers. Please comment below!

_______________________________________________________________________

Richard D. Vetstein, Esq. is an experienced Massachusetts real estate closing attorney who has closed thousands of purchase and refinance transactions. Please contact him if you need legal assistance purchasing residential or commercial real estate.

{ 2 comments }

Leaving With Keys and Carpal Tunnel: Why Do Buyers Sign So Many Closing Documents?

by Rich Vetstein on June 19, 2012

in Closings, Deeds, Disclosures, Fannie Mae, FHA, HUD, Insurance, Massachusetts Real Estate Law, Mortgages, Real Estate Taxes, RESPA, Safety, Title Insurance, Truth in Lending

Real Estate Crash Has Resulted In Many More Forms and Disclosures

These days buyers are leaving closing rooms with not only their keys but a mild case of carpal tunnel syndrome! The reason for sore forearms and wrists is the voluminous stack of closing documents which are now required to be signed and notarized at every Massachusetts real estate purchase or refinance closing.

One of my opening “break the ice” lines at closings is to suggest that the buyers start massaging their writing hands. Then I show them the 2 inch stack of documents they must review and sign, and they usually say, “Are you serious? We have to sign all that?” Yep, I reply. You can thank Fannie Mae and the real estate collapse for that! All the new rules and regulations passed in the last 5 years have resulted in, you guessed it, more forms. Do you think the Feds and state ever eliminate old or out-dated forms? Nope.

Let me quickly go over some of the more important — and less important — documents signed at a typical Massachusetts real estate closing.

The Closing Documents

  • HUD-1 Settlement Statement. This is arguably the most important form signed at closing. It breaks down all the closing costs, lender fees, taxes, insurance, escrows and more. We did a full post on the HUD-1 and all the closing costs you can expect to pay here. Under the newer RESPA rules, most closing costs must be within 10% tolerance of the Good Faith Estimate provided by the lender (which you will also re-sign at closing).
  • Promissory Note & Mortgage. These two documents form what I like to call the “mortgage contract.” The promissory note is the lending contract between borrower and lender and sets the interest rate and payment terms of the loan. It is not recorded at the registry of deeds. The Mortgage or Security Instrument is a long (20+ page) document and provides the legal collateral (your house) securing the loan from the lender. The Mortgage gets recorded in the county registry of deeds and is available to public view. Read a full explanation of the Note and Mortgage in this post.
  • Truth in Lending Disclosure (TIL). The Truth in Lending should really be called “Confusion In Lending,” as the federal government has come up with a confusing way to “explain” how your interest rate works. This is a complex form and we’ve written about it extensively in this post. Your closing lawyer will fully explain the TIL form to you at closing.
  • Loan Underwriting Documents. With increased audit risk on loan files, lenders today are requiring that borrowers sign “fresh” copies of almost all the documents they signed when they originally applied for the loan. This includes the loan application, IRS forms W-9 and 4506’s.
  • Fraud Prevention Documents. Again, with the massive mortgage fraud of the last decade, lenders are requiring many more forms to prevent fraud, forgeries, and straw-buyers. The closing attorney will also make a copy of borrowers’ driver’s licenses and other photo i.d. and submit the borrower’s names through the Patriot Act database. They include Occupancy Affidavit (confirming that borrowers will not rent out the mortgaged property), and the Signature Affidavit (confirming buyers are who they say they are or previously used a maiden name or nickname).
  • Escrow Documents. Unless lenders waive the requirement, borrowers must fund an escrow account at closing representing several months of real estate taxes and homeowner’s insurance. This provides a cushion in case borrowers default and the taxes and insurance are not paid.
  • Title Documents. For purchase transactions, Massachusetts requires that the closing attorney certify that a 50 year title examination has been performed. Buyers will counter-sign this certification of title, as well as several title insurance affidavits and documents which the seller is required to sign, to ensure that all known title problems have been disclosed and discovered. Of course, we always recommend that buyers obtain their own owner’s title insurance which will provide coverage for unknown title defects such as forgeries, boundary line issues, missing mortgage discharges, etc.
  • Property Safety Disclosures. In Massachusetts, buyers and sellers will sign a smoke/carbon monoxide detector compliance agreement, lead paint disclosure, and UFFI (urea formaldehyde foam insulation) agreement. These ensure that the property has received proper certifications and will absolve the lender from liability for these safety issues.
  • Servicing, EOCA and Affiliated Business Disclosures. Chances are that your lender will assign the servicing rights to your mortgage to a larger servicer, like JP Morgan Chase or CitiMortgage. You will sign forms acknowledging this. You will be notified of the new mortgage holder usually within 30-60 days after closing. In the meantime, the closing attorney will give you a “first payment letter” instructing you where to send your first payment if you don’t hear from the new servicer. You will also sign forms under the federal and state discrimination in lenders laws and forms disclosing who the lender uses for closing services.

Well, those are most of the documents that buyers will sign at the closing. Sellers have a slew of their own documents to be signed at closing, and I’ll cover that in a future post. As I said, at your closing, massage your signature hand, grab a comfy pen, and sign your life away!

_________________________________________________

Richard D. Vetstein, Esq. is an experienced Massachusetts real estate attorney. He can be reached by email at [email protected] or 508-620-5352.

{ 4 comments }

Truth In Lending Disclosure Statement: How About Confusion In Lending?

by Rich Vetstein on March 28, 2011

in Closings, Disclosures, HUD, Massachusetts Real Estate Law, Mortgages, Truth in Lending

Annual Percentage Rate (APR), Amount Financed, Finance Charge, and Total Payments…the Truth In Lending Disclosure Statement is one of the most challenging disclosure forms to explain to borrowers at a Massachusetts real estate closing. I like to call it the “Confusion In Lending” Statement because the form is what happens when the government attempts to recalculate your interest rate and closing costs in a way most human beings would not even consider.

To explain the Truth In Lending Disclosure, we’ll use a dummy form for a $500,000 purchase transaction with a $400,000 loan (20% down payment), a 30 year fixed rate loan at 5.00% at a cost of 1 point.

Annual Percentage Rate

The confusion begins. The Annual Percentage Rate, or APR, as you can see is not 5.00%, which is the contract interest rate for the loan. Why? Because the APR does not use the loan amount for its calculations but rather the “Amount Financed.”

Amount Financed

And the confusion continues. The Amount Financed is not the $400,000 loan amount, but is about $6,600 less than the loan amount. That is because the Amount Financed equals the loan amount ($400,000) less prepaid loan and closing fees and payments. Fees included in the amount financed are: points, lender fees such as underwriting, process, tax service, mortgage insurance, escrow company fees, prepaid interest to end of closing month, and Homeowners Association fees. All of these fees are added up and subtracted from the loan amount to reach the Amount Financed figure. Note that depending on when the loan closes in the month, and fees from third parties such as escrow companies the Amount Financed will vary and therefore so will APR.

How The APR Is Calculated

Now that we have the Amount Financed, we can calculate the APR. For a 30 year fixed loan such as this, the true loan amount is amortized for the loan period using the interest rate. In our example $400,000 amortized for 30 years at 5.00% has a payment of $2,147.29 per month paying principal and interest.

To calculate the APR, we use the same payment –$2147.29 every month for 30 years– to pay off an Amount Financed of $393,372.22 (loan amount less costs) to reach an APR of 5.141%. So the APR is higher than the interest rate because the Amount Financed is lower than the loan amount for the same monthly payment and term.

ARMs–Adjustable Rate Mortgages

If you are taking out an adjustable rate mortgage (ARM), you may as well just throw the Truth in Lending Disclosure out the window. The TIL is allowed to be based on the introductory interest rate through the entire life of the loan. Your adjustable rate mortgage, however, will reset its interest rate after 3, 5, 7, or 10 years depending on the type of product. There’s no way to predict where interest rates will be in the future, so the Truth in Lending Disclosure is inherently inaccurate for ARMs.

Explaining the Truth in Lending Disclosure is one of the many functions of a Massachusetts real estate closing attorney. In other states which aren’t required to use closing attorneys, they will not explain these complicated forms to you.

___________________________________

Richard D. Vetstein, Esq. is an experienced Massachusetts Real Estate Closing Attorney. For further information you can contact him at [email protected].

{ 5 comments }