Magazine article Mortgage Banking

No Time to Delay

Magazine article Mortgage Banking

No Time to Delay

Article excerpt

AT ALMOST 1,900 PAGES, the Truth in Lending Act (TILA)/Real Estate Settlement Procedures Act (RESPA) Integrated Disclosure rule is one of the most challenging, complicated and game-changing rules to come out of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

With less than six months to go before the Aug. 1,2015, implementation deadline, plans and policies for how to operationalize the rule's requirements should be very solid at this point.

There are many issues lenders need to address, but I will focus on several that should be addressed immediately.

Who should prepare the Closing Disclosure?

With some exceptions (covered in this column), borrowers will no longer receive a HUD-1 Settlement Statement or a final Truth in Lending disclosure because those documents have been combined into the new Closing Disclosure form. The new form is substantially different from the HUD-1, and in the early days of implementation, mistakes are likely to be made.

Because lenders are responsible for the content and timely delivery of the Closing Disclosure, the first decision that must be made by the lender is whether the lender's staff or the settlement agent should be responsible for preparing it.

So far, several large and midsized lenders have decided to prepare the Closing Disclosure themselves because, first, they're responsible for any mistakes regardless of who makes them; and second, they must document their compliance with all facets of the rule, including that the Closing Disclosure was delivered in a timely fashion. Regardless of whether it's prepared in-house or by a settlement agent, lenders should:

* be working to ensure that fee schedules are up to date, everyone understands which fees can--and cannot--change prior to closing, and any fee changes are quickly and accurately reported; and

* be developing close and coordinated communication with their settlement agents to ensure that the Closing Disclosure is finalized in time to meet the rules governing its delivery and receipt--in part because certain changes (covered later in this column) require redisclosure and an additional waiting period before the transaction can close.

Note that settlement agents will likely continue to issue settlement statements for loans covered by the rule, just not in the form of a HUD-1.

Delivery protocols

The rule requires that the Closing Disclosure be delivered to the consumer at least three business days before consummation of the transaction. Redisclosure and an additional three-business-day waiting period are required if, after the initial Closing Disclosure has been delivered, 1) the annual percentage rate (APR) changes by more than 1/8 of a percent or 1/4 of a percent for irregular loans, 2) the loan product changes or 3) a prepayment penalty is added.

The delivery rule is complicated by the fact that consummation is defined as the moment when the consumer becomes contractually obligated to the lender. While that sounds simple enough, the actions that trigger contractual obligation are governed by state law, and consummation is not always synonymous with settlement or closing.

Lenders must ensure that their staff, service and technology providers know the laws for the jurisdictions in which loans are made, and that they are being applied consistently and correctly.

According to John Hollenbeck, executive vice president at First American Title Insurance Company, Santa Ana, California, there seems to be an emerging consensus among lenders that that the Closing Disclosure will be delivered at least three days before loan documents are signed. The thinking seems to be that, for the purposes of the three-day rule-which requires the Closing Disclosure to be delivered no later than three days prior to consummation--signing is the best common denominator. The general view is that borrowers are not obligated on the mortgage any earlier than the point of signing. …

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