Lenders Take Note: CFPB Issues Guide to Forms

Big changes are in store for real estate closings in 2015 (we first wrote about it here). Now, lenders have some guidance from the Consumer Financial Protection Bureau (“CFPB”) as to how complete forms that will become mandatory in August 2015.

For over thirty years, federal law has required lenders to provide two different disclosure forms (the Truth in Lending Statement and Good Faith Estimate) to consumers applying for a mortgage. The law also has generally required two different forms (a final Truth in Lending Statement and a HUD-1 settlement statement) at or shortly before closing on the loan. The forms were developed separately by two different federal agencies, pursuant to two separate acts: the Truth in Lending Act (“TILA”) and the Real Estate Settlement Procedures Act of 1974 (“RESPA”).

In an effort to simplify the closing process and help consumers become more informed of their options and obligations, the Consumer Financial Protection Bureau has launched the “Know Before You Owe” campaign – an initiative aimed at reforming the mortgage market. Beginning in August 2015, the two sets of forms issued to consumers will be reduced and replaced with a Loan Estimate Form and Closing Disclosure. These new forms use clear language and are designed to make it easier for the consumer to understand key information, such as the interest rate, monthly payments, and closing costs of the loan.

CFPB’s recently-issued Guide to Forms (available here) provides originators with step-by-step instructions for completing the Loan Estimate and the Closing Disclosure and addresses situations that are expected to arise frequently. The 96-page guide should be reviewed by anyone who routinely participates in the mortgage closing process. The guide specifically states that it may be helpful for settlement service providers, software providers, secondary market participants, and other firms that serve as business partners to creditors.

The Know Before You Owe rules bring about numerous technical and substantive changes to the mortgage closing process. Now is the time for lenders to prepare for the new era of closings by participating in training, reviewing their internal processes, and speaking with an attorney about their new compliance responsibilities.

J. Markham

Joshua J. Markham is a member at McBrayer, McGinnis, Leslie & Kirkland, PLLC in the Lexington, KY office. Mr. Markham practices in virtually every aspect of real estate law, including title examination, title insurance, clearing title issues, deeds, settlement statements, preparation of loan documentation, contract negotiation and preparation, lease negotiation and preparation, and any and all other needs related to residential and commercial real estate matters.He can be reached at jmarkham@mmlk.com or (859) 231-8780, ext. 149.

This article is intended as a summary of federal and state law activities and does not constitute legal advice.

 

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Lenders: Are You Using Electronic Signatures?

Earlier this year, the Federal Housing Administration (“FHA”) announced that they would begin accepting electronic signatures on documents associated with mortgage loans. FHA already allows e-signatures on some third party documents, outside of the lender’s control. The announcement, which became effective immediately, expanded the documents for which e-signatures are acceptable and now includes:

(1)    Any documents associated with servicing or loss mitigation;

(2)    Any documents associated with the filing of a claim for FHA insurance benefits;

(3)    The HUD Real Estate Owned Sales Contract and related addenda; and,

(4)    All documents included in the case binder for mortgage insurance except the Note.

Starting December 31, 2014, FHA will also accept e-signatures on the Note for forward mortgages, but not Home Equity Conversion Mortgages.

Lenders who have decided to rely on e-signatures must be sure that they are in compliance with the Electronic Signature in Global and National Commerce Act (“ESIGN”). In addition, authentication systems should be in place that can confirm that a signature may be attributed to the purported signer and lenders should take steps to confirm the signer’s identity as a party to the transaction. There must also be record retention controls in place that are consistent with the retention policies of ink-signed documentation.

Hopefully, the acceptance of e-signatures will reduce mortgage origination costs and streamline document submission processes for both lenders and borrowers. The move is just a part of the overall initiative to make the home buying process easier for consumers (see what the Consumer Financial Protection Bureau is doing here).

By now, lenders should have had time to review their technological capabilities and update their policies and procedures on e-signatures. If you are a lender and have not done so, consider how accepting e-signatures can improve your processes and efficiency. If you have questions about FHA’s announcement or about regulations to which you must adhere, such as ESIGN, contact a McBrayer real estate attorney today.

CRichardson

Christopher A. Richardson is an associate at McBrayer, McGinnis, Leslie & Kirkland, PLLC in the Louisville, KY office. Mr. Richardson concentrates primarily in real estate, where he is experienced in residential and commercial closing transactions, landlord/tenant relations, and mortgage lien enforcement/foreclosure. Mr. Richardson has closed innumerable secondary market and portfolio residential real estate transactions and his commercial practice ranges from short-term collateralized financing and construction lending to development revolving lines of credit. He can be reached at 502-327-5400 or crichardson@mmlk.com.

This article is intended as a summary of  federal and state law and does not constitute legal advice.

A New Beginning for Closings

Currently, under federal law, within three business days after receiving an application, mortgage lenders must deliver two different disclosures to the applicants: an early Truth in Lending Statement and a Good Faith Estimate. At closing, two more disclosures are required: a final Truth in Lending Statement and a HUD-1 settlement statement. Starting Aug. 1, 2015, that long-established process will change. The forms will be reduced to two and simplified so that consumers will be able to mortgage shop more easily and understand their mortgage terms and costs more thoroughly.

The mortgage crisis that began in 2008 was precipitated by many consumers taking on loans they could not afford. Though the industry has rebounded from the crisis, the dire situation highlighted the need for consumers to better understand the true costs and risks of a mortgage. Under the Dodd-Frank Act, the Consumer Financial Protection Bureau (CFPB) received the power to create new rules for the Real Estate Settlement Procedures Act (RESPA) and for most of the Truth in Lending Act (TILA), which are the laws that require the existing disclosure forms. After two years of research and testing, the CFPB decided that the simplified, so-called “Know Before You Owe” mortgage forms are the best way to educate consumers.

Beginning in August 2015, consumers will be provided with The Loan Estimate form  within three days after submitting a loan application. It replaces the first Truth in Lending statement (long-considered ironically named for the confusion and lack of clarity it gave to consumers) and the Good Faith Estimate. Consumers can use this form to compare costs and features of various loan options. Three business days before the loan closing, consumers will receive a Closing Disclosure. This replaces the final Truth in Lending statement and HUD-1 settlement statement. For the first time, consumers can review the final loan terms and costs before they take a seat at the loan closing table.

This upcoming change is just a part of CFPB’s initiative to reform the mortgage markets. Hopefully, consumers will not be the only ones to benefit from the future modifications. Lenders and real estate attorneys should be optimistic about the potential to cut down on administrative costs and lessen the “surprises” that can ruin a closing. Those in the mortgage industry should review the forms carefully and take necessary implementation steps in the year ahead.

CRichardson

Christopher A. Richardson is an associate at McBrayer, McGinnis, Leslie & Kirkland, PLLC in the Louisville, KY office. Mr. Richardson concentrates primarily in real estate, where he is experienced in residential and commercial closing transactions, landlord/tenant relations, and mortgage lien enforcement/foreclosure. Mr. Richardson has closed innumerable secondary market and portfolio residential real estate transactions and his commercial practice ranges from short-term collateralized financing and construction lending to development revolving lines of credit. He can be reached at 502-327-5400 or crichardson@mmlk.com.

This article is intended as a summary of  federal and state law and does not constitute legal advice.

One Day Left to Share Your Comments about the Closing Process!

On January 3, the Consumer Financial Protection Bureau (“CFPB”) issued a notice and request for information in the Federal Register regarding the real estate closing process. Specifically, the CFPB is interested in knowing the consumer “pain points” associated with mortgage closing and how those pain points might be addressed by market innovations and technology.

The bureau wants input from consumers, mortgage lenders, housing attorneys, settlement closing agents, real estate agents, fair lending and consumer advocates – basically anyone and everyone with closing experience. This is your chance to share your perspective, whether good or bad, and help the closing process to be a smoother and more consumer friendly one for your future purchase, sale or refinance. The information collected during the comment period will be used to help the CFPB come up with future improvement initiatives. This is part of the larger “Know Before You Owe” project, which is intended to help consumers understand and navigate the home-buying process.

The CFPB has made it easy to share information by listing seventeen specific questions they would like responses to, including:

1. What are common problems or issues consumers face at closing? What parts of the closing process do consumers find confusing or overwhelming?

2. Are there specific parts of the closing process that borrowers find particularly helpful?

3. What do consumers remember about closing as related to the overall mortgage/home-buying process? What do consumers remember about closing?

4. How long does the closing process usually take? Do borrowers feel that the time at the closing table was an appropriate amount of time? Is it too long? Too short? Just right?

5. How empowered do consumers seem to feel at closing? Did they come to closing with questions? Did they review the forms beforehand? Did they know that they can request their documents in advance? Did they negotiate?

6. What, if anything, have you found helps consumers understand the terms of the loan?

7. What are some common errors you have seen at closing? How are these errors detected, if at all? Tell us about errors that were detected after closing.

8. What changes, diverging from what was originally presented at closing, often surprise consumers at closing? How do consumers react to changes at closing?

9. How, if at all, do consumers typically seek advice during closing? In person? By phone? Online?

10. Where and to whom do consumers turn for advice during closing? Whom do they typically trust?

11. What documents do borrowers usually remember seeing? What documents they remember signing?

12. What documents do consumers find particularly confusing?

13. What resources do borrowers use to define unfamiliar terms of the loan?

14. What, if anything, would you change about the closing process to make it a better experience for consumers?

15. What questions should consumers ask at closing? What are the most important pieces of information/documents for them to review?

16. What is the single most important question a consumer should ask at closing?

17. What is the single most important thing a consumer should do before coming to the closing table?

You can submit answers to these questions, along with your own additional comments, online by visiting this webpage:  http://www.regulations.gov. But time is of the essence! The comment period closes tomorrow, February 7th. Hurry and let your opinions be known!

BMacGregor

 Brittany C. MacGregor is an associate attorney practicing in the Lexington office of McBrayer, McGinnis, Leslie & Kirkland, PLLC. She is a graduate of Transylvania University and the University of Kentucky College of Law. Ms. MacGregor’s practice focuses on real estate law, including title examination, title insurance, clearing title issues, deeds, settlement statements, preparation of loan documentation, contract negotiation and preparation, and lease negotiation and preparation. She may be reached at bmacgregor@mmlk.com or at (859) 231-8780.