CFPB - Disclosures Affecting Transactions 8 2015
NEW LOAN DISCLOSURES - May 2015
Change over from the Good Faith Estimate and the HUD-1 to the new Loan Estimate and Closing Disclosure forms.
On August 1st the long awaited TILA/RESPA integration will go into effect. As of that date, for most transactions the Good Faith Estimate (GFE) and the HUD-1 will no longer be used, and instead, two new forms will appear. First, the GFE and the initial Truth-in-Lending disclosures will be combined into a new form called the Loan Estimate. Second, the HUD-1 and the final Truth-in-Lending disclosures will be combined into another new form called the Closing Disclosure.
Possible Delays in Closing?
The timing requirements to deliver the Closing Disclosure have some brokers concerned about potential delays in the closing process. What are those timing requirements? First, 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, for practical purposes, the Closing Disclosure will have to be delivered seven days before consummation. Keep in mind also that "consummation" is not the same thing as closing. "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. Add into the mix that there is a fairly steep learning curve for lenders, escrows and title officers regarding use of the new forms. The TILA/RESPA Rule is 1,888 pages in length and is chock full of various twists and turns all of which have to be figured out, taught, learned, and put into practice. Finally, it is expected that lenders are intending to retain tight control over the process of issuing the Closing Disclosure. Any last minute changes to the contract, such as seller credits to buyers, will cause the reissuance of a new Closing Disclosure potentially creating further delays as the change winds its way through the lender's system. What does this all mean? No one can say for sure. It is possible that lenders will have worked out all of the kinks and be ready to go on day one. There may not be any delays at all. That is definitely a possibility. But brokers and agents in the field should not be too surprised if come early September, when the first closings under the new system will happen, that the loan is inexplicably delayed.
What is the practical advice in light of the potential for delays in the loan process> Overall advice would be to begin the loan approval process as soon as possible in the transaction, helping to reduce the risk of delayed closings. Additionally, buyers should be advised on the risks of removing the loan contingency. Another possibility is to negotiate for a loan contingency that will remain in effect until funded. Or, if the seller is threatening a cancellation after delivery of a Notice to Buyer to Perform, negotiate an extension. Some sellers may want a per diem in exchange for the extension which as long as it reasonable is legal for the seller to ask for. Prepare your buyer for these possibilities.
More information about the new loan disclosures forms and requirements is available from several sources. Two resources are available from the California Association of REALTORS
- C.A.R. Legal Q&A titled "Loan Estimate and Disclosure Forms." and
- C.A.R Legal Live Webinar "RESPA/TILA Integration Overview
Two other resources are available from the Consumer Finance Protection Bureau:
- The Small Entity Compliance Guide provides clear and comprehensive answers to many technical questions regarding the implementation of theTILA/RESPA Rule, and
- CFPB's TILA/RESPA main page which provides a guide to forms, a disclosure timeline, an annotated loan disclosure form, sample videos, and the actual 1,888 page rule itself.