Know Before You Owe: The real estate professional’s guide

Disclaimer  The Bureau issued the TILA-RESPA Integrated Disclosure final rule in November of 2013 to implement provisions under the Dodd Frank Wall Street Reform and Consumer Protection Act.  The Bureau issued amendments to the TILA-RESPA Integrated Disclosure final rule in January and July of  The Final Rule will take effect on October 3,  This presentation is current as of August, This presentation does not represent legal interpretation, guidance, or advice of the Bureau. While efforts have been made to ensure accuracy, this presentation is not a substitute for the rule. Only the rule and its Official Interpretations can provide complete and definitive information regarding requirements. This document does not bind the Bureau and does not create any rights, benefits, or defenses, substantive or procedural, that are enforceable by any party in any manner. 2

consumerfinance.gov/know-before-you-owe/real-estate-professionals 3

4 The Know Before You Owe mortgage disclosure rule primarily does two things: 1.It simplifies and consolidates some of the required loan disclosures, and 2.It changes the timing of some activities in the mortgage process.

consumerfinance.gov/know-before-you-owe/real-estate-professionals 5

BEFORE 6

AFTER 7

BEFORE 8

AFTER 9

10 consumerfinance.gov/mortgage-estimate consumerfinance.gov/mortgage-closing

consumerfinance.gov/know-before-you-owe/real-estate-professionals 11

12

consumerfinance.gov/know-before-you-owe/real-estate-professionals  Preapprovals and prequalifications before an application are unchanged by the rule.  Creditors are able to review documents voluntarily provided by a consumer.  But creditors cannot require any written documentation as a condition for providing a Loan Estimate. 13

consumerfinance.gov/know-before-you-owe/real-estate-professionals Lenders must provide Loan Estimates within 3 business days after consumers have provided: their name their income their Social Security number (so the lender can check credit) the address of the home they hope to purchase an estimate of the home’s value (typically the sale price) the amount they want to borrow. 14

consumerfinance.gov/know-before-you-owe/real-estate-professionals  Loan Estimates will be the most useful when the applicant describes the specific loan program they are requesting.  E.g. 30-yr FHA with 3.5% down payment vs. 30-yr conventional with 5% down payment.  By comparing the same kind of loan across different lenders, clients are more likely to find their best deal. 15

consumerfinance.gov/know-before-you-owe/real-estate-professionals  Loan Estimates must be available to consumers without any written documentation required—this makes comparison shopping easier.  Issuing a Loan Estimate does not mean that the lender has approved or denied the loan.  Lenders are not required to issue Loan Estimates with locked interest rate commitments. If the interest rate isn’t locked, the rate and any rate-related fees or credits can change. 16

consumerfinance.gov/know-before-you-owe/real-estate-professionals 17 Creditors can define the steps required for the intent to proceed to be effective. Loan Estimates expire after ten business days without an active intent to proceed from the borrower. After a Loan Estimate expires, creditors are no longer required to honor the terms offered.

consumerfinance.gov/know-before-you-owe/real-estate-professionals 18  A creditor cannot collect fee payment information (e.g., credit card information, post-dated check) from a consumer prior to:  the creditor delivering (or placing in the mail) a Loan Estimate; and  the applicant actively expressing that they intend to proceed with the mortgage application connected with the Loan Estimate.  The only exception is a reasonable fee for the credit report.

consumerfinance.gov/know-before-you-owe/real-estate-professionals 19 If credit card information is collected to pay for a credit report, it must be re-submitted to be used for other fees (e.g. application fee, appraisal fee). Lenders may require payment before beginning the appraisal, processing, verification or underwriting processes.

consumerfinance.gov/know-before-you-owe/real-estate-professionals Loan Estimates must be accurate based upon the best information available. However, if the information about your client, the proposed loan, or the property was incorrect or changes, a revised Loan Estimate may be issued. This can be referred to as a changed circumstance. 20

consumerfinance.gov/know-before-you-owe/real-estate-professionals Common reasons why a Loan Estimate may be revised include: Your client decided to change loan programs or the amount of the down payment. The appraisal on the home came in higher or lower than expected. Your client’s credit status changed, perhaps owing to a new loan or a missed payment. The lender could not document overtime, bonus or other income provided on your client’s application. 21

consumerfinance.gov/know-before-you-owe/real-estate-professionals  A creditor is responsible for ensuring that the consumer receives the Closing Disclosure no later than three business days before closing.  If the creditor does not have evidence that the consumer actually received the Closing Disclosure (in person or by other means), the creditor may presume that the consumer received the Closing Disclosure three business days after it was delivered or placed in the mail. 22

consumerfinance.gov/know-before-you-owe/real-estate-professionals If changes occur, creditors must redisclose terms or costs on the Closing Disclosure. But, only three changes require a new 3-business-day review: 1.The APR (annual percentage rate) increases by more than 1/8 of a percent for regular loans (most fixed-rate loans) or 1/4 of a percent for irregular loans (most adjustable loans). 2.A prepayment penalty is added. 3.The basic loan product changes, suc h as a switch from fixed rate to adjustable rate or to a loan with interest-only payments. 23

consumerfinance.gov/know-before-you-owe/real-estate-professionals 24

consumerfinance.gov/know-before-you-owe/real-estate-professionals 25

consumerfinance.gov/know-before-you-owe/real-estate-professionals 26 Make sure your clients feel comfortable they can afford the home and feel confident in their ability to receive a mortgage loan approval for the required amount. Encourage prospective homebuyers to review their credit reports early in the process. They can find and correct errors, potentially raising their score and reducing their cost of borrowing.

consumerfinance.gov/know-before-you-owe/real-estate-professionals 27 Loan Estimates no longer require written documentation so encourage your clients to compare offers from several lenders. Clients who understand market rates are more likely to feel confident about their choices and work proactively and collaboratively with their lender. This will avoid second guessing whether they got the best deal.

consumerfinance.gov/know-before-you-owe/real-estate-professionals 28 Lenders have different policies about what your clients need to do to successfully move an application forward from the Loan Estimate stage into active processing. Talk to lenders serving your area to learn about these policies and discuss lender requires with your clients to be confident that your clients have an active mortgage application underway.

consumerfinance.gov/know-before-you-owe/real-estate-professionals 29 Open lines of communication help prevent needless confusion and delays. Make sure your clients have detailed information they can share with their lender about property taxes, homeowner’s association fees, condominium association fees, and the estimated cost for homeowner’s insurance.

consumerfinance.gov/know-before-you-owe/real-estate-professionals 30 If anything about the transaction changes, communicate those changes promptly to everyone and confirm the information has been received. Confirm the lender and the closing company have the buyer’s and the seller’s real estate broker information. Because this information appears on the Closing Disclosure, they both need correct and complete information.

consumerfinance.gov/know-before-you-owe/real-estate-professionals 31 Previously HUD-1 Settlement Statements were most often provided by a settlement agent, attorney or closing company. This may not be the case for the Closing Disclosure. Lenders may choose to prepare and deliver the Closing Disclosure to your client directly. They may deliver it through the mail, in- person, or electronically.

consumerfinance.gov/know-before-you-owe/real-estate-professionals 32 Find out who will be preparing and providing the Closing Disclosure, when and how your client can expect to receive it, and how any last minute changes are handled. Find out if the lender or the closing company has a required timeframe for any change requests. Keep in mind that no matter who prepares or provides the Closing Disclosure, the lender is accountable for its accuracy and approves the final version.

33

34

Your home loan toolkit: a step-by-step guide 35

Your home loan toolkit: a step-by-step guide  The Toolkit is designed to help consumers more effectively shop for a mortgage.  Creditors are required to provide to mortgage applicants within 3 days of receiving an application.  All market participants are encouraged to provide copies to consumers, preferably as early in the home or mortgage shopping process as possible. 36

Share CFPB Materials with your Clients  consumerfinance.gov/learnmore/#respa consumerfinance.gov/learnmore/#respa 37

Examining two scenarios for RESPA compliance Scenario 1 does comply with RESPA. Scenario 2 does not comply with RESPA. 38

CFR § (g)(vi) Section 8 of RESPA permits: “Normal promotional and educational activities that are not conditioned on the referral of business and that do not involve the defraying of expenses that otherwise would be incurred by persons in a position to refer settlement services or business incident thereto.” 39

Scenario 1 does comply with RESPA  Scenario 1: A title company prints copies of the Toolkit with the title company’s logo. The title company provides multiple copies to real estate professionals without cost to the real estate professionals, without the provision of the copies being conditioned upon the referral of business, and without any control over whether or how the copies will be further distributed.  Section 8 of RESPA permits title companies to provide the Toolkit to real estate professionals under § (g)(vi) as described in scenario 1: The provision of multiple copies of the Toolkit with the title company’s logo is a part of the title company’s “normal promotional and educational activities.” Neither the title company nor the real estate professional are defraying expenses that otherwise would be incurred by the other. 40

Scenario 2 does not comply with RESPA  Scenario 2: A title company prints and provides multiple copies of the Toolkit to a real estate professional with the real estate professional’s logo on the cover at no cost to the real estate professional.  Scenario 2 does not fit within § (g)(vi): Promoting the real estate agent is not a “normal promotional and educational activity” of the title company. The title company is defraying expense that otherwise would be incurred by the real estate professional. 41

Know Before You Owe: The real estate professional’s guide