Since 2015 the governmental agencies for home purchasing have attempted to streamline the home-buying process with updated regulations and new disclosure and financing processes. I will attempt to wade through all of the deluge and touch on the important parts that a home buyer should expect to encounter when they finance their home purchase. Of course, all bets are off if the home buyer pays all cash for their home or if this home is not considered as their primary residence.
First, understand that an abundance of changes has been implemented as a result of the financial crises of 2008/2009. Since that time, there has been new laws, and even new agencies to create and govern these new laws, have all been put in place. Therefore, it would be difficult to touch on everything in one short report, but I will attempt to stick to just the basics and highlight major changes that can be expected as you go through the financing part of your home purchase.
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REGULATIVE BACKGROUND
The Dodd Frank Act directed the Consumer Financial Protection Bureau (CFPB, one of those ‘new’ agencies) to implement regulations to combine the disclosures required under the Truth In Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA). The TILA and RESPA were regulated by different groups – TILA being governed by the Federal Reserve Board and RESPA by HUD, but the Dodd Frank Act brought them both under the authority of the CFPB. The new regulations are intended to make it easier for borrowers to understand their mortgage terms, shop for loans more easily, and review final loan terms prior to closing.
So, the CFPB consolidated four separate disclosures into 2 new disclosures, the Loan Estimate, and the Closing Disclosure. The CFPB refers to these changes to the industry as TILA-RESPA integrated disclosures, or TRID. Whenever there is reference to these updated changes and new modifications to these regulations, the term TRID is often used. The CFPB’s consumer campaign for those changes is called “Know Before You Owe.”
For a complete understanding, since October 3, 2015, the Loan Estimate has replaced the Good Faith Estimate (GFE) and the initial Truth in Lending document, and the Closing Disclosure has now replaced the HUD-1 Settlement Statement (HUD-1) and the final TIL document.
This illustrates how 4 different disclosures have now been combined to only 2
FROM THE APPLICATION TO THE CLOSING
The ‘official’ start of the funding process begins with the borrower providing an application. Now, although the industry-wide standard application form is known as the Fannie Mae Form 1003 – Uniform Residential Loan Application, or 1003 for short. However the borrower may provide his personal information to the Mortgage Originator using a variety of methods, whether in person, over the Internet, on the phone, or some other means.
Whatever the method of submission, when 6 specific pieces of information has been obtained, then an application is considered as being taken. These six points of data are:
1. Name
2. Income
3. SSN
4. Property Address
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5. Estimated Value
6. Loan Amount
Details about the application process is that the sometimes the application process may be sequence over a number of days, but after the 6th piece of data is provided, then it is now considered received. Once received, this “triggers” sequential events to occur. Events will then adhere to the Mortgage Disclosure Improvement Act (MDIA) timeframes, also know as the 3/7/3 rule.
Loan Estimate
The Loan Estimate (LE) is designed to provide information that will be helpful to consumers in understanding key features, costs, and risks of the mortgage loan for which they are applying. Insight into the Loan Estimate includes:
· It must be the best information reasonably available at the time disclosure is provided
· The creditor (Mortgage Broker) must use due diligence to obtain information disclosed
· Deliver must be within 3 business days after receiving the application
· It is presumed ‘received’ by borrower 3 business days after delivery
· The LE can not be received by the borrower after the Closing Disclosure – therefore it can not be received by borrower later than 4 business days prior to consummation
Closing Disclosure
This new disclosure is designed to provide information that will be helpful to consumers in understanding all of the actual costs of the transaction. Delivery requirements and waiting periods are meant to give the consumer time to review the costs before they become obligated. Therefore:
· It must be received by the borrower 3 business days prior to consummation
· Closing Disclosure may be used to reset tolerances only if the original Closing Disclosure was provided within 3 business days of the actual closing date
· Certain changes require new 3 business day waiting period from when borrower receives the corrected Closing Disclosure, such as:
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Disclosed APR becomes inaccurate (mirrors the MDIA)
Loan product changes (product = amortization or payment attribute change)
Prepayment penalty is added
TIMELINE SCENARIO
Here is a timeline scenario that can help you to visualize what the milestones are and how you will need to prepare for your new loan under the current regulations.
If you submitted your loan application on the first Monday of November 4, 2019, this would mean that you provided the Mortgage Loan Originator (MLO) with at least 6 pieces of information that constitute a loan application. This would now mean that the MLO has 3 business days to deliver the Loan Estimate to you, the borrower. Since this is a delivery timing requirement, we apply the delivery definition of ‘business day’, which is a day the business is carrying out substantially all business functions (for our example, we are not going to worry about holidays). For many businesses Saturday and Sunday are therefore excluded as business days, therefore we will gray those days out.
Based on the November 7th delivery date, the LE will be presumed to be received on the 11th. Again using the required waiting period, the earliest consummation date – according to MDIA – is on the 15th , which is 7 business days from the November 7th delivery date. Incidentally, here is another term that you may or may not be clear on – consummation date, this date is not necessarily the same as the closing date, since it literally means the date that you are obligated for the loan that you are acquiring from the lender. Since some states are what is called “escrow” states, the closing where you and the seller transact your business may not be the same date that the loan is legally signed and consummated.
Moving further in our example, we now need to think about the 3 business day waiting period for date that you as the borrower receives the Closing Disclosure when thinking about the closing date. Working back from the closing date of the 29th, you must receive the Closing Disclosure no later than the 25th. With our conservative approach to the milestones, that would indicate the Closing Disclosure should be delivered NO later than November 22nd.
This scenario is based on conservative delivery and receipt dates. The Loan Estimate could have been delivered as early as November 4th, and if there is proof that the borrower received either disclosure on the day it was sent or before the 3 business day period elapses, the waiting periods associated with those disclosures may be shortened based on the actual receipt date.
What do these changes mean for you?
· MDIA waiting periods are based on the delivery and receipt of your Loan Estimate – Borrowers can be charged for appraisals when they receive the Loan Estimate and express intent to proceed
· You may have an application that triggers a Loan Estimate earlier than under the current law
· Interest rate lock, loan program, or additional fees may require closing deadlines be extended
· Closing dates will need to consider the timeline necessary for the borrower to select a lender, complete an application, receive their Loan Estimate, provide intent to proceed, receive the Closing Disclosure, and adhere to the waiting period required before closing
Well, hopefully this document provides insight into the ever-changing world of acquiring a mortgage. So, until next time (or a new update to our regulations), Happy House Buying!
Source: https://t-tees.com
Category: WHY
