Wednesday, July 29, 2015



Here is a brief overview of how and why we are at the crossroads of such a dramatic change in our Industry.

As we all know, in the Fall of 2008 our Country suffered a severe financial crisis. We witnessed the fall and closure of many Institutions. There was an overall loss of wealth, which affected companies and individuals, along with serious unemployment. It was understood that large parts of our financial system operated with little to no Oversight.

President Obama signed the Dodd-Frank Act of 2010 to make sure that a crisis like this never happens again and to prevent the excessive risk taking that led to the financial crisis. The law also created a watchdog to prevent the exploitation of Consumers, which they thought would build a safer and more stable financial system, one that provides a robust foundation for lasting economic growth and job creation. This reform is designed to make sure that everyone follows the same set of rules. It demands accountability and responsibility from everyone. Helping Consumers to avoid the payment of hidden fees and penalties, along with loans they cannot ultimately afford. Cracking down on abusive practices in the mortgage industry, making sure Contracts are easier to read so people know what they are signing. Home Buyers will receive more information about the costs, and the risks, so that they can make better financial decisions. This consumer watchdog will be looking out for just regular people as they interact with the financial system.

This Consumer Watchdog organization is now known as the Consumer Financial Protection Bureau, the C.F.P.B., an entity created by the Dodd-Frank Act.

In short, its intent is to lower risk, promote transparency and protect the American public.

While the Dodd Frank Act also affects student loans and investment banking, specific to the mortgage industry, it mandates the combination of TILA and RESPA, the Truth in Lending Act with the Real Estate Settlement Procedures Act, combining the Loan Disclosures and Good Faith Estimates and the HUD1 Settlement Statement disclosure, into a single disclosure. The HUD1 will be replaced by the Closing Disclosure, in most transactions.

Most consumer mortgages are affected by this rule, with the exception of,

    • Home Equity Lines of Credit 
    • Reverse Mortgages 
    • Mortgages secured by a Mobile Home 
    • Commercial Loans 
  • where for the time being, the HUD1 shall continue to be utilized, though I do understand that the CFPB will be working on its replacement in time. 

    With these new regulations also comes a whole new vocabulary of terms. T.R.I.D. is an acronym for TILA RESPA INTEGRATED DISCLOSURES. That’s TILA for the Truth in Lending Act and RESPA for the Real Estate Settlement Procedures Act. 

    The Initial Truth in Lending Statement and Good Faith Estimate shall be replaced by a Loan Estimate. The Final Truth in Lending Statement and the HUD-1 are replaced with a Closing Disclosure, or C.D. as it will be commonly referred as. The regulation requires delivery to the Buyer, now known as the Consumer, three (3) business days prior to signing. (See attached List of New Terms and Acronyms). 

    Lenders must have the following to accept and begin processing a new loan;

    Six (6) items required to issue Loan Estimate:
    1. Consumers Name 
    2. Consumers Income 
    3. Consumers SSN (to obtain credit report) 
    4. Property Address 
    5. Estimated Value of the Property 
    6. Requested Mortgage Loan Amount 

    Some other new Industry terms include:

    • The signing shall be considered the closing and shall now be known as the date of Consummation; Our Lender will now be referred to as the Creditor and our Escrow Agent will now be called a Settlement Provider.
    Also, once the Consumer signs the promissory note and loan documents, he becomes legally obligated to the Creditor. While the date of consummation effectively means date of Closing, there is still some need for clarification on this front as the Lender has not yet funded the loan and the deeds have not yet been recorded.


    • Buyer to begin process well before entering into Contract 
    • Avoid last minute changes which will impact the Closing Disclosure 
    • Disclose to Lender Seller Credits 
    • Disclose to lender any Buyer paid Broker Admin Fees 
    • Comply with City ordinances prior to Appraisal, ie. Smoke detectors, carbon monoxide detectors, water heater strapping ALL to avoid need for Appraiser to return to the property. 
    • HOA Contact information 
    • Obtain HOA Documents before beginning loan process 
    • Buyer paid Termite Inspection/Repairs 
    • Avoid Additional costs at time of Walk Through 
    • Buyer paid Home Warranty 
    • Reimbursement for Broker Paid Costs 

    1. Closings may take longer because of the three (3) business day review periods 
    2. Your contact information and license number must appear on the Closing Disclosure form 
    3. Your Clients may receive multiple Loan Estimates due to: 
      1. Changed Circumstances
      2. Multiple applications for different loan products with the same lender
      3. Multiple applications with different lenders
    4. Clients may receive multiple Closing Disclosures, some with three (3) business day waiting period and some without; 
    5. Some before closing and some after closing 
    6. Buyers lenders title policy will not show separately as a charge 
    7. Last minute changes will impact the Closing Disclosure delivery time, ultimately affecting the date of closing 

    In closing,
    • The new disclosures are intended to simplify the previously used forms. Last-minute concessions, changes to Agreement 
    • Requires Lenders to ensure borrowers have ability to repay their mortgage.
    • Prohibits steering incentives, dual compensation and levels the playing field for qualification and screening standards 
    • Protects Consumers from detrimental actions by mortgage servicers and provides Consumers with Better tools, information and protections for consumers facing foreclosure 
    1. Personal delivery of Closing Disclosure will help to expedite the closing 
    2. Electronic or email delivery are considered “mailbox” delivery. The CD must be sent Six (6) business days prior to Consummation (loan document signing). Mailbox rule gives three (3) business days for delivery, with a three (3) day review period, for a total of Six (6) business days. 

    Keep in mind that the Lenders are being held Legally Responsible for the actions or inactions of their Service Providers where Consumers are harmed as a result of failing to comply with Consumer Financial Law.

    Understanding the Lenders position is important and as Industry Professionals we must manage our expectations and the expectations of our Clients to be realistic so as to avoid disappointment. CFPB imposed Daily penalties $5,000.00 (failure to follow laws), $25,000.00 (gross negligence) , $1,000,000.00 (intentional violations)

    Possible scenarios of delayed closing. 
           Multiple loan Estimates due to: 
      1. changed circumstances 
      2. different loan products (programs) 
      3. applying with different Lenders
    Nationwide Learning Curve

  • New Word for the times! FLEXIBILITY, more so than ever 
  • Include additional wording in Contract allowing for additional time and cooperation of the parties, in the event extension is necessary due to re-disclosure 
  • Not to under estimate time period 
  • Avoid putting Lenders and Mortgage Brokers in a position to fail 
  • Utilize handouts of CFPB Toolkit and Closing Check List

  • ***************************************************************************************************
    Find out more about us at Any Questions? Contact our Escrow Expert! Sepulveda Escrow Corporation (818) 838-1831. Follow our company on Facebook, Twitter, LinkedIn, and Google+.

    No comments:

    Post a Comment