Closing Disclosure: Deep Dive – Pages One and Two

Download White Paper

Jonathan Foxx

President & Managing Director

Lenders Compliance Group

This is the fourth article of a six-part series devoted to TILA/RESPA Integration Disclosure. Although the series, structured as White Papers, was initially established with four parts, I have added a fifth and sixth part to discuss additional features of the Closing Disclosure. In this article, I will take you through a review of Page One and Page Two of the Closing Disclosure. In the fifth part, I will discuss Page Three. The sixth and final part of the series will provide an outline of Page Four and Page Five. Through a review of important highlights, I invite you to join me in a deep dive into the intricate features of the Closing Disclosure.

In the first article, I discussed the mission of TILA-RESPA Integration and the Loan Estimate (LE).[i] The second article introduced and treated the numerous features of the Closing Disclosure (CD).[ii] In the third article, I provided the salient features of the Loan Estimate, in considerable detail.[iii] The first two articles were accompanied by detailed tables to be used for certain itemized categories and action requirements.

I would suggest that you read all the articles in this series in order to better understand the TILA-RESPA Integration Disclosure (TRID) rule promulgated by the Consumer Financial Protection Bureau (CFPB).

One of the reasons I have written this series is to cut through the information noise. My concern stems from the nearly profiteering stance of the flourishing punditry to opine on TRID. This approach to learning seems to have become the norm recently at conferences, conventions, webinars, seminars, lectures, and pricey city-to-city forums. Indeed, also, people with no real experience in directing regulatory compliance, though having some training background, seem to hang out their TRID webinar shingle. I view the latter as but shills for generating leads for their affiliated pundits.

I happen to think that TRID is too important, being a generational change in disclosure, to hog the helpful information about TRID by charging a fee just so somebody could attend and possibly learn something about it. With that in mind, my firm recently established two proactive paths to a TRID knowledgebase:

(1) We established the TEAM TRID™ task force,[iv] a relatively inexpensive, cost-effective way to get TRID integration implementation done efficiently (viz., www.teamtrid.com); and importantly

(2) We established TRIDHotline.com,[v] an entirely free online service, manned by our task force, to assist people with their questions about TRID. We want to listen to their compliance needs (viz., www.tridhotline.com).

Hopefully, you will have read the previous three articles. Now we will continue a detailed review of the new disclosures, by providing this fourth article on the Closing Disclosure. As indicated above, a fifth and sixth article will further elucidate the Closing Disclosure analysis.

In focusing on the Closing Disclosure, I will offer a perspective of its pertinent and critical highlights. As I have stated throughout this series, I caution you to realize that this review is not exhaustive or comprehensive, given that the TRID rule contains very complex disclosure requirements, and there are on-going updates and interpretations involving its implementation, some of which are borne of the CFPB’s own issuances as well as the areas that may be subject to litigation.

Please consider my analysis carefully. Follow along with a copy of the Closing Disclosure. I will provide, where helpful, some information as Suggested Guidance. Allow at least two hours to consider this explication. And as I have admonished all along, make notes, raise questions, and seek answers from competent compliance professionals!

There are five pages to the Closing Disclosure. We will visit each of them, with particular interest in understanding their key features. Although I will take the CD somewhat in order, it should be noted that this method of explanation is not meant to suggest that each Closing Disclosure contains five pages or that in all instances the information described appears on that page in the same order. For example, Regulation Z allows an alternative “Calculating Cash to Close” table for transactions without sellers.[vi]

Page One

The first page of the Closing Disclosure includes General Information, the Loan Terms table, the Projected Payments table, and the Costs at Closing table. The CD begins with the title “Closing Disclosure” and a form purpose statement, followed by three columns of basic information headed “Closing Information,” “Transaction Information,” and “Loan Information.”[vii] The page then includes three tables: “Loan Terms,” Projected Payments,” and “Costs at Closing.”[viii] The text itself is required for federally related mortgage loans subject to TILA-RESPA disclosure integration. Note should be taken that the model form is for transactions subject to TILA only and not RESPA.

Loan Estimate: Deep Dive

Download White Paper

Jonathan Foxx

President & Managing Director

Lenders Compliance Group

This third article of a four-part series beckons us to a deep dive into the Loan Estimate.

In the first article, I discussed the mission of TILA-RESPA Integration and the Loan Estimate (LE).[i] The second article introduced and treated the numerous features of the Closing Disclosure (CD).[ii] Each of the foregoing articles were accompanied by detailed tables to be used for certain itemized categories and action requirements.

The final and fourth article will provide an extensive analysis of the Closing Disclosure.

I would suggest that you read all the articles in this series in order to better understand the TILA-RESPA Integration Disclosure (TRID) rule promulgated by the Consumer Financial Protection Bureau (CFPB).

One of the reasons I have written this series is to cut through the information noise. My concern stems from the nearly profiteering stance of the flourishing punditry to opine on TRID. This approach to learning seems to have become the norm recently at conferences, conventions, webinars, seminars, lectures, and pricey city-to-city forums. Indeed, also, people with no real experience in directing regulatory compliance, though having some training background, seem to hang out their TRID webinar shingle. I view the latter as but shills for generating leads for their affiliated pundits.

Attendees sometimes leave these convocations and ad hoc caboodles more confused than beforehand. Occasionally, they call my firm and want to know who has the correct view, Mr. Pundit A or Ms. Pundit B. I have noticed recently that certain pundits that previously, freely offered advice on TRID are now charging fees for their webinars or offering their guidance, for a fee, via well-known webinar purveyors and online audio/visual enablers. I offer these reflections not as exculpation, rather as expiation, since I have been on panels, and given lectures and webinars, alongside many members of the conscientious punditocracy.

But I happen to think that TRID is too important, being a generational change in disclosure, to hog the helpful information about TRID by charging a fee just so somebody could attend and possibly learn something about it. With that in mind, my firm recently did two proactive things: (1) we established the TEAM TRID™ task force,[iii] a relatively inexpensive, cost-effective way to get TRID integration implementation done efficiently; and importantly (2) we established TRIDHotline.com,[iv] an entirely free online service, manned by our task force, to assist people with their questions about TRID. We want to listen to their compliance needs!

In my view, these two foregoing measures help to address the challenge we face as we head toward the compliance effective date of August 1, 2015. I want to do what I can to ensure that we all are ready! “Ready” means ready for everybody, since the stability of the residential mortgage loan originations industry and the financial protection of the consumer depend on understanding and implementing the many features of the TRID rule.

Hopefully, you will have read the previous two articles (i.e., Part I and Part II). Now we will embark on a detailed review of the new disclosures, beginning in this third article with the Loan Estimate.

Let’s get real close to the Loan Estimate. In this article I will not discuss pre-application estimates and worksheets in detail, except to mention that a creditor or other person may choose to provide a consumer with a written preliminary estimate of terms or costs specific to that consumer before providing the Loan Estimate. If it does so, the creditor or other person must clearly and conspicuously state at the top of the front of the first page of the estimate in a font size no smaller than 12-point: “Your actual rate, payment, and costs could be higher. Get an official Loan Estimate before choosing a loan.”[v] Furthermore, the estimate may not be made with headings, content, and format substantially similar to the Loan Estimate or Closing Disclosure.[vi]

So let’s focus on the Loan Estimate, since I plan to take you solely through the Loan Estimate in considerable detail. I will discuss salient highlights of the Loan Estimate, though I caution you to realize that this review is not exhaustive or comprehensive, given that the TRID rule contains very complex disclosure requirements, far more involved, byzantine, elaborate, incisive, and potentially enigmatic than the compendiary features of it discussed herein.

Please follow my analysis carefully. Allow at least two hours to consider this elucidation. Make notes, raise questions, seek answers from competent compliance professionals!

HIGHLIGHTS

Loan Estimate Form

For any federally related mortgage loan,[vii] the Loan Estimate must be made using the model form set forth in Exhibit H - Form H-24 in the CFPB’s Federal Register issuance.[viii] TRID does not require the use of the model form for non-RESPA transactions; that is, those subject to the integrated disclosures because they are subject to TILA and secured by real property but are not subject to RESPA.[ix] There are numerous text, structure, and field descriptions associated with the LE disclosure. Thus, it would be wise not to deviate from the model provided.

For those non-RESPA loans, the disclosures must be made with headings, content and format substantially similar to form H-24. Use of model form H-24, properly completed with accurate content, would constitute compliance for those loans.[x]

According to the CFPB, the Loan Estimate integrates at least seven pages of disclosures, including:

·       Three pages of the RESPA Good Faith Estimate;

·       Two pages typically used for early TILA disclosures;

·       One page typically used for the appraisal notice under the Equal Credit Opportunity Act;

·       One page typically used for the servicing disclosure.

The Loan Estimate also incorporates disclosures of:

·       The total interest percentage (TIP);[xi]

·       The aggregate amount of loan charges and closing costs the consumer must pay at consummation;[xii]

·       For refinances, the anti-deficiency protection notice;[xiii]

·       The homeowner’s insurance disclosure.[xiv]

TRID imposes strict specifications for the Loan Estimate. For instance, unless otherwise specifically provided, a disclosure that does not apply to a transaction should be left blank, not marked “not applicable” or “N/A,” and, as a general rule, may not be deleted.[xv]

Disclosure Integration, High Cost, and Counseling

On July 9, 2012, the CFPB issued its proposed integration of RESPA and TILA disclosures into the "integrated" forms, entitled "Loan Estimate" and "Closing Disclosure". These new forms are derived from the Good Faith Estimate (GFE), the Truth-in-Lending (TIL) Disclosure, and the HUD-1/1A Settlement Statement. This assemblage has been duly dubbed with the euphemism "integration".

Excluded from the forthcoming integration are reverse mortgages, home equity lines of credit (HELOCs), chattel dwelling loans, and de minimis originations consisting of loans made by creditors who make five or fewer otherwise covered loans per year.

I have covered the process of constructing these forms in several newsletters and articles, including HERE, and HERE.*

The CFPB is not expecting to finalize the integration before the end of this year. Comments are due November 6, 2012.

However, there is a comment deadline of September 7, 2012 - which will lead to rulemaking before January 2013 - regarding the extent to which the rule applies to loans previously exempted from RESPA or TILA and the further redefining of the term “finance charge” to include most costs associated with residential mortgage loans.

By its own admission, the CFPB has stated that the proposal to "broaden" the definition of a "finance charge" by adopting certain adjustments or accommodations in its HOEPA implementing regulations under Regulation Z, would "cause more loans to exceed the APR and points and fees triggers and be classified as high-cost mortgages under HOEPA."

The CFPB has also set forth proposed rules to implement Dodd-Frank amendments regarding high-cost mortgages and also to provide homeownership counseling provisions that would affect mortgage lending generally (with no exclusion for HELOCs).

The implications of these rules, taken together, are far reaching. I would suggest that you visit our Library for further information.

___________________________________________________

IN THIS ARTICLE

“Loan Estimate” and “Closing Disclosure”

Integration

High-Cost Mortgages

Homeownership Counseling

Library

___________________________________________________

“Loan Estimate” and “Closing Disclosure”

• The Loan Estimate replaces the GFE and early TIL, while the Closing Disclosure replaces the HUD-1/1A and final TIL.

• HUD's Special Information Booklet will still be required.

• The CFPB's proposal would combine five pages (seven if typical appraisal and servicing disclosures were to be counted) of TILA/RESPA data into a three-page Loan Estimate, not counting the written list of available providers that must be separately provided if the creditor allows a consumer to shop for a settlement service.

• The Closing Disclosure is five pages.

Integration

The integration not only provides an entirely new format but also reconciles certain existing differences between Regulation X, the implementing regulation of RESPA and Regulation Z, the implementing regulation of TILA.

Highlights

• Redefines the term “application” by deleting the 7th component from the definition adopted by HUD, as outlined in its New RESPA Rule FAQs, as “any other information deemed necessary by the loan originator.”

• Alters the coverage of the disclosure requirements so they would apply to home loans, except for the aforementioned exemptions.

• Changes the timing and responsibility rules for providing closing disclosures.

• Prohibits the collection of any fees other than a credit report fee, until the Loan Estimate has been received, as provided by Regulation X, instead of the broader parameter of the “credit history” fee set forth in Regulation Z.

• Prohibits the collection of any fees other than a credit report fee, until the consumer has indicated “an intent to proceed with the loan,” as specified by the Regulation X amendments of January 2010.

• Requires the credit report fee to be accurately described as a credit report fee, not as an “application fee.”

• Allows preliminary estimates only if they are clearly labeled as not the Loan Estimate.

• Continues requiring the Regulation X Special Information Booklet, and possibly incorporating material from the Regulation Z's ARM (CHARM) booklet.

• Prohibits a creditor from requiring a consumer to verify any information the consumer provided with the application (per Regulation X).

• Incorporates the disclosure tolerances of Regulation X, modified to extend the zero tolerance to fees paid to affiliate providers and providers for whom a consumer cannot shop.

• Adjusts Regulation X limitations on revising Loan Estimates, including the definition of “changed circumstances.”

• Allows a waiver of waiting periods in the event of bona fide personal emergencies.

• Permits price averaging.

• Requires providing certain Closing Disclosures to the seller, if a seller is a party to the transaction.

• Requires close communication and cooperation between mortgage brokers and settlement agents who may provide disclosures, in order to ensure accurate disclosure.

• Prohibits providing disclosures of both estimated and actual costs at the same time (viz., as revised Loan Estimate and a Closing Disclosure).

• Requires the retention of evidence of compliance (i.e., permitting electronic file retention) for three years for Loan Estimates and five years for Closing Disclosures.

• Requires states with existing exemptions from TILA (i.e., Maine, Connecticut, Massachusetts, Oklahoma, and Wyoming) to conform their laws if they wish to retain their exemptions.

High-Cost Mortgages

• Balloon payments would largely be banned, and creditors would be prohibited from charging prepayment penalties and financing points and fees.

• Late fees would be restricted to four percent of the payment that is past due, fees for providing payoff statements would be restricted, and fees for loan modification or loan deferral would be banned.