Since late last year, you’ve probably have heard the following terms (CFPB, TILA/RESPA or August 1st Changes) tossed around the real estate industry, that is unless you have been living underneath a large boulder. Regardless of which, it is time to take note and also take action to ensure your local colleagues are educated as well because August 1 will be here in a hot minute. It also doesn’t matter if you are a seasoned professional or have been licensed a year, you understand all too well the turbulence created when regulatory changes effect. Here is an 30,000 foot view of the CFPB changes and how you can ensure a smooth process for all involved.
Why is this change necessary?
For more than 30 years, when a consumer applied for a mortgage loan their lender supplied them with two different disclosures. Unfortunately, the two disclosures displayed inconsistent and confusing language or were difficult for the mortgage/title professional to explain. After further investigation and more than a year of consumer research, the Dodd-Frank Act mandated the Consumer Financial Protection Bureau (or CFPB for short) to revisit the disclosures to ensure the they were easy enough for a consumer to understand. The outcome was a new rule that outlined a combined disclosure, now called the TILA-RESPA.
Beginning August 1, 2015, there will be two new forms delivered during the mortgage process. One when the consumer applies for a mortgage loan and another a few days prior to closing on a mortgage loan. The two new documents are referred to as the Loan Estimate and the Closing Disclosure.
The Loan Estimate (LE) will allow consumers to understand the costs of obtaining financing and any risks associated with the type of loan they are applying for. The LE will need to be furnished to the borrower within three business days after applying for a mortgage loan. Please note the keyword BUSINESS days, not calendar days. The LE replaces the Good Faith Estimate (GFE) and Truth in Lending (TIL).
The Closing Disclosure (CD) will allow consumers to understand the costs associated with their actual transaction and be able to have a glimpse of the final numbers they will see at the closing table. The CD must be provided to the borrower and the borrower MUST sign the CD three business days prior to the closing date. Please note the keywords MUST and BUSINESS days, not calendar days. Oh and to complicate matters, when there is a holiday involved there will be further delays. If during the lending process, there are loan changes that result in changes in the APR by ⅛ of 1% in either direction, an addition of a pre-payment penalty or a loan product change a new CD must be delivered, signed and additional three business day waiting period will apply.
How to Ensure a Smooth Process
The first way to ensure a smooth process is to acclimate yourself with title and mortgage professionals who are taking the steps now to be ready long before August 1, 2015. Educate your clients that there will be new documents they will be required to sign at and return shortly after application and several days prior to closing, better yet, create a blog post outlining the process or even a video series that you could share with potential clients when you meet them. Be up front and honest about requirements and set expectations to limit potential hiccups with all parties, including the cooperating broker. Make sure all your transactional ducks are in a row, including all contract changes have been submitted to the lender long before 3 days prior to closing. The last thing any real estate professional wants is to have a client upset because they cannot close due an oversight on your end. Lastly, these changes will go into effect for any borrower who applies for mortgage financing, including refinancing a current mortgage, on or after August 1, 2015.