By: Gregory M. Kosin, President, Greater Illinois Title Company
The Consumer Financial Protection Bureau released its long awaited regulations last month that will change the way consumers shop for and close on residential real estate transactions. The new regulation combines disclosures required under the Truth in Lending Act and the Real Estate Settlement Procedures Act.
At the CFPB rollout, the focus was on consumers: to help them make fair comparisons of different loan offerings, to provide for a better understanding of the long and short term costs of a loan and to provide a more detailed accounting of their transaction. The CFPB sought to determine what best helped borrowers understand the costs of their loans through extensive testing.
This regulation is far-reaching and will take a great deal of time for the industry to digest and prepare for in the coming months. The new rule affects every lender, every borrower, every seller of residential real estate and every title company including all attorney agents. The rule establishes the single biggest change to the residential loan process and consumer disclosures since the original RESPA regulation was implemented in 1974.
The title industry is generally pleased that the CFPB listened to industry professionals on many issues. However, the title industry is working to change a portion of the rule which refers to owner’s title insurance as “optional” for home buyers. A consumer protection agency telling consumers that owner’s title insurance is an option is extremely puzzling. It will mean that buyers may be dissuaded from obtaining the same protection that lenders receive from title insurance.
The Final Rule is effective August 1, 2015 which gives the industry time to prepare for its implementation.
The regulation applies to most consumer mortgages except home equity loans, reverse mortgages and mortgages secured by a mobile home. Commercial loans are not covered by the new rule.
The new Loan Estimate prepared by the lender or mortgage broker, must be provided to the borrowers within three days of the application. It provides loan terms, projected payments, closing cost details and an estimated cash to close. The Loan Estimate is also set up to allow consumers an easier way to do comparison shopping with other loan offerings.
Included in the rule is a new three day disclosure requirement for lenders. Lenders must provide to consumers the Closing Disclosure, which replaces the HUD-1, with final figures three business days prior to closing. A new three business day closing re-disclosure will be triggered by one of the following three events:
- A one eighth of 1 % change in the APR
- A change in the loan product (e.g. fixed rate to adjustable)
- The addition of a pre-payment penalty
The next priority for the CFPB is to work with the industry to encourage the use of the e-signing of documents, e-closings and e-recordings to enhance the closing experience for consumers.
The title industry will continue to work with the CFPB over the next twenty-one months to develop training, implementation, and compliance for the industry.
Welcome to the new era in closings!