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With the new TILA-RESPA Integrated Disclosure rule going into effect on October 3, Fidelity National Title senior sales executive Connie Montalbano-Hill and senior account executive Desiree Baker want to make sure REALTORS® are prepared, so no delays will occur with their transactions. At Thursday’s Silicon Valley Association of REALTORS® Cupertino/Sunnyvale District tour meeting, they explained the fine points of the new law, what’s different, and what REALTORS® can do to make sure a transaction won’t fall through.
The new forms are a consolidation of several forms. The Good Faith Estimate (GFE) and the initial Truth-in-Lending disclosures will be combined into a new form called the Loan Estimate. The HUD-1 and the final Truth-in-Lending disclosures will be combined into another new form called the Closing Disclosure.
Timing is critical. According to the Consumer Financial Protection Bureau, the Closing Disclosure must be delivered and received three days in advance of “consummation” of the loan. If the Closing Disclosure is not actually received in person, the new rules require an additional three-day period if it is delivered by mail or electronically. Given that Sunday is not counted, the Closing Disclosure will have to be delivered seven days before consummation. “Consummation” will typically be the day loan documents are signed, which is usually at least one day in advance of closing but could be more.
Baker said three changes would require a new 3-day review: if the APR increases by more than 1/8 of a percent for fixed rate loans, or 1/4 of a percent for adjustable loans; if a prepayment penalty is added, making it expensive to refinance or sell; and if the basic loan product changes, such as a switch from fixed rate to adjustable interest rate or to a loan with interest only payments.
The title company representatives gave SILVAR members a list of title insurance facts they need to know, including new terms and information included in a loan estimate. They said the new rule ensures that the lender take more of a leadership role in the transaction, but every lender is different. That’s why it is very important that REALTOR® have good communication with their lender, their title officer, and their client.
“Know you client well, so you avoid surprises,” said Montalbano-Hill. “Take care of the details ahead of time. The more you know your client, the better.”
Montalbano-Hill noted that a change in the name of a newly married spouse, for instance, can cause problems if not disclosed to all parties.
Baker added, “Don’t make assumptions. Everyone is going to have to be on the same page at the same time.”
SEE CFPB’S “KNOW BEFORE YOU OWE” REAL ESTATE PROFESSIONAL’S GUIDE
Left, the Los Gatos/Saratoga District panel with Sal Covarrubias, Annie Delgado and Cindy Stanford. Right, the Palo Alto District panel with Eric Trailer, Caroline Wolf, Janine Dietiker and Jackie Griffin.
Silicon Valley Association of REALTORS® (SILVAR) Districts are educating members on what they need to know about the new disclosure forms, the result of the new Truth in Lending Act and Real Estate Settlement Procedures Act Integrated Disclosure (TRID) rule that goes into effect October 3.
At a July SILVAR Los Gatos/Saratoga District tour meeting, the topic was discussed by a panel with Sal Covarrubias, who is with First American Title Company, and mortgage lenders Annie Delgado and Cindy Stanford, both with Opes Advisors. At the SILVAR Palo Alto August monthly meeting, the panel on TRID included mortgage lenders Eric Trailer, with EverBank and Caroline Wolf, with Princeton Capital, and title company representatives Jackie Griffin, with Old Republic Title Company and Carol Boyden, with Chicago Title Company.
The new rule combines the Good Faith Estimate (GFE) and the initial Truth-in-Lending disclosures into a new form called the Loan Estimate. The new rule also combines HUD-1 and the final Truth-in-Lending disclosures into another new form called the Closing Disclosure.
The good news is it will be easier for buyers to compare the loan estimate with the disclosure, panelists say, but many are concerned that the new rule could delay closings because of timing requirements concerning delivery of the Closing Disclosure. The Closing Disclosure must be delivered and received three days in advance of “consummation” of the loan, which is the day loan documents are signed. If the Closing Disclosure is not received in person, the new rule requires an additional three-day period if it is delivered by mail or electronically. Sunday is not counted; then, add a federal holiday into the mix and the possibility is great that the Closing Disclosure may have to be delivered seven days before consummation.
Also, since compliance with the new rule falls heavily on lenders, it is very likely that lenders will retain tight control over much of the disclosure process. Any last minute changes to the contract, such as seller credits to buyers or removing a loan contingency, could cause the reissuance of a new Closing Disclosure, further delaying the transaction.
The panelists said three changes would definitely require a new 3-day review:
- If the APR (annual percentage rate) increases by more than 1/8 of a percent for fixed-rate loans or 1/4 of a percent for adjustable loans. A decrease in APR will not require a new 3-day review if it is based on changes to interest rate or other fees.
- If a prepayment penalty is added, making it expensive to refinance or sell.
- If the basic loan product changes, such as a switch from fixed rate to adjustable interest rate or to a loan with interest-only payments
Any other changes in the days leading up to closing do not require a new 3-day review, although the lender will still have to provide an updated disclosure.
What can REALTORS® do to avoid pitfalls? Panelists advise:
- Be conservative regarding the timeline. Start the process early. Even if signing is a month away, encourage clients to get the required documents and information to the lender early. Avoid the last-minute scramble. It is critical to get the information sooner than later.
- There needs to be open communication and transparency among all parties – the client, the REALTOR®, the title officer and the lender. Tell your loan officer everything. There should be no surprises.
- Get clients solidified into a loan program as soon as possible. Make sure the financing is in order. Tell the lender about all fees associated with the transaction. Always give updated versions.
- Completeness is critical. Make sure all documents are completely filled out and accurate.
- Educate your consumers, get a commitment, and take control.
The Consumer Financial Protection Bureau (CFPB) today just released a new online toolkit to help real estate professionals understand the new TILA-RESPA Integrated Disclosure (TRID) rule and how to explain those changes to their clients. As part of the CFPB’s larger mortgage initiative campaign called “Know Before You Owe”, the “Real Estate Professional’s Guide” explains the new changes coming to the home buying process on October 3 and offers tools that real estate professionals can provide their clients about the “Know Before You Owe” campaign. Visit http://bit.ly/1IQVfgf
Another source about the October 3 changes to the closing forms and procedures in an hour-long webcast entitled, “The New Closing Rules,” with closing expert Phil Schulman and National Association of REALTORS® Senior Counsel Finley Maxson.
REALTORS® can also visit www.car.org/legal and watch the California Association of REALTORS® Legal Live Webinar entitled “RESPA/TILA Integration Overview.”
Silicon Valley Association of REALTORS® says ... 