Submit Your Questions/Comments About the CFPB's Integrated Mortgage Disclosures

Please send your questions or comments about the Consumer Financial Protection Bureau's final rule for integrated mortgage disclosures to respacomments@alta.org. We will post answers and analysis to the final rule and forms here on our blog. We encourage title professionals to follow the blog as we will continue to provide analysis and information about implementing the new mortgage disclosures. The CFPB set an effective date of Aug. 1, 2015 for the industry to begin using the new disclosures.

Here are links to the final rule, Loan Estimate and Closing Disclosure:

The CFPB also has provided some additional information, including a factsheet about the integrated mortgage disclosures and information about the testing process used to arrive at the final rule.

11/18/2014

Conquering the Loan Estimate Part 1: Disclosing Interest Rates

In today’s blog post, we address the disclosure of interest rates on the Consumer Financial Protection Bureau’s Loan Estimate, which starting Aug. 1, 2015, will replace the current GFE and early Truth-in-Lending Disclosure.

Although the rule has specific requirements for disclosing interest rates, it does not address how interest rates should be disclosed under certain circumstances. For example, the rule does not specify how a hybrid loan should be disclosed. A hybrid loan would be a loan that is a combination of products, such as a Step Rate loan and an Adjustable Rate loan. The rule requires a creditor to select one loan product type from the following: Step Rate, Adjustable Rate, or Fixed Rate. (§ 1026.37(a)(10). When disclosing a hybrid loan, a creditor should disclose the loan as an Adjustable Rate loan. Although the interest rates during the step periods are known, the loan features periods where the interest will be adjusted, and such rates are not known at the time of consummation. Due to this uncertainty, hybrid loans more closely resemble Adjustable Rate loans and should be disclosed as such.

Additional confusion arises when disclosing the loan interest rate when the initial rate calculation differs from subsequent calculations. Since the rule requires creditors to use the best information available at the time of the loan consummation, the creditor should disclose the initial interest rate applicable at the date of consummation (§ 1026.37(b)(2)). Both Section 1026.37(b)(2) of the rule and the preamble to this section clearly state that the disclosed interest rate should be the rate at consummation. This requirement does allow creditors to disclose an interest rate that is a composite of different interest rates that are applicable when a transaction features multiple interest rates for different portions of a loan’s principal balance in a precomputed transaction. However, the allowance stems from the overarching rule that the disclosed interest rate should be the rate that applies at the consummation of the transaction.

Watch for the second part of this blog post as we address the disclosure of points and fees.

10/02/2014

Title Action Network on the Front Line Advocating for the Industry’s Future

The real estate and mortgage finance industries continue to be under intense scrutiny. From the Consumer Financial Protection Bureau (CFPB) to state regulators, business practices are being examined. This is why active participation is needed in the Title Action Network (TAN), the title industry’s grassroots organization. Launched in 2012, TAN promotes the value of the land title industry at the state and federal level. Over the past two years, TAN members have sent more than 4,400 communications to 380 policymakers in response to the network’s calls to action. Members have weighed in on the CFPB, RESPA/TILA reform, mortgage interest deduction, GSE reform, flood insurance and many other topics.

On the national front, TAN members have been crucial in building support for a bill that would create an advisory board for small businesses at the CFPB. Because of alerts sent by TAN members to their representatives, this important bill now has 37 co-sponsors in the House of Representatives.

TAN members have been just as active and successful at the state level as well. State victories are just as important. In my home state of Minnesota, our governor had proposed a budget that would have created an additional sales tax on real estate services. This would have included closing services and other professional services provided by the land title industry, as well as brokers’ commissions and appraisal services. In conjunction with the Minnesota Land Title Association, TAN members convinced the governor to drop his pursuit of taxes on most additional services, including real estate service taxes.

Earlier this year, our colleagues in Michigan partnered with the state land title association to drum up support for legislation to address recording issues. Most recently, members in New York worked with the New York State Land Title Association to convince legislators to pass an agent licensing bill. Meanwhile, members in Colorado used TAN to encourage regulators to hit the pause button on amending industry regulations.

As you can see, TAN is an essential piece in ALTA’s advocacy efforts to connect title professionals with members of Congress. The ability to systematize and fuse participation on federal and state issues makes TAN an effective tool for everyone involved. Through August, TAN had more than 8,000 members. We are pushing to eclipse 10,000 by the 2014 Annual Convention.

Now more than ever, it is critical to showcase a cohesive and energized voice when advocating for the value of the land title industry. Joining TAN is simple. Please go to www.titleactionnetwork.com to enroll. Membership is free. The more people involved, the stronger our voice. What’s holding you back? Get involved today!

 

09/30/2014

Endorsement Fees: To Include or Not to Include?

As title professionals handling closings become more familiar with the CFPB’s integrated mortgage disclosure forms, some questions have come up regarding disclosing endorsement charges. Since the final rule does not address endorsement charges and only speaks to disclosing the policy premium, there is no specific guidance as to how to disclose endorsements.

In following with the spirit of the rule, which promotes accurate disclosures to prevent any consumer confusion, it is best to disclose any endorsement fees separately on the disclosure forms. This approach applies to endorsement fees included in the lender’s premium as well as in the owner’s title policy calculation. 

Endorsement fees should not be included in any policy premium disclosure computations to avoid consumer confusion as to the costs of their policies. Listing the endorsement fees separately from premium disclosures will better ensure that the consumer fully understands the closing transaction. Keep in mind that if the endorsement is wrapped into an enhanced policy you do not need to show the endorsement separately.

As a reminder, title fees will need to be structured this way on the Loan Estimate and Closing Disclosure: “Title – [description of fee]”.

As an example, an endorsement for the lenders policy--such as the PUD endorsement--would go under services you did or did not shop for depending on where the other title fees are appropriately disclosed:

Closing_disclosure_1

 

 

09/26/2014

ALTA Unveils New Annual Convention Website

To deliver a better experience for attendees, ALTA is proud to unveil a new website dedicated exclusively for the 2014 Annual Convention.

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Designed to adapt to any device or platform, the website provides easy access to conference information, including the schedule, tours, vendors and exhibitors, hotel information, and more.

So whether you are sitting in a session during the day or relaxing at night, information about the convention is accessible on your computer, smartphone, iPad or other device.

Click here to view the website or copy and paste this URL: http://meetings.alta.org/annual

For attendees who previously downloaded the convention app, there is no need to get an update this year. The new website includes all the information you need without the hassle of downloading or updating the app.

What Do You Think About Wells Fargo's Plan to Produce and Deliver Closing Disclosure?

Since the Consumer Financial Protection Bureau released its final rule for the new integrated mortgage disclosures, which go into effect Aug. 1, 2015, many title professionals have asked:

  • Who will prepare the Closing Disclosure?
  • Who will deliver the Closing Disclosure?
  • How will processes change to enable delivery of the Closing Disclosure to the customer for  receipt at least three business days prior to closing?

Q3_wells_fargo_Page_1

In its quarterly newsletter to settlement agents, Wells Fargo answered how it plans to handle the Closing Disclosure. The lender said that due to creditor liability of the Closing Disclosure it plans to produce and deliver the Closing Disclosure to the borrower.

Wells also stated that it values its local business partners and plans to continue collaborating with settlement agents to schedule and conduct closings. Wells Fargo is asking settlement agents to provide feedback on the information contained it is newsletter. Click here to take the survey.

Dan Mennenoh, chair of the Research Committee and president of Illinois-based H. B. Wilkinson Title Co., said Wells Fargo reached out to ALTA’s Research Committee to get feedback on which entity will prepare and deliver the Closing Disclosure. The lender also wants feedback on how processes will need to change in order to meet regulatory requirements that the borrower receive the form at least three days prior to closing.

ALTA appreciates Fargo’s initiative to get feedback from title and settlement agents and learn how the new Closing Disclosure will impact the closing process.

In its letter, Wells also stated that it values its local business partners and plans to continue collaborating with settlement agents to schedule and conduct closings. Wells Fargo is asking settlement agents to provide feedback on the information contained it is newsletter. Click here to take the survey. 

What are your thoughts on Wells' decision to handle production and delivery of the Closing Disclosure? Have you heard from other lenders on how they will handle the Closing Disclosure? 

 

09/18/2014

Top 8 Tips for Putting Your Recovery Plan into Action

With it being National Preparedness Month, Agility Recovery has created an infographic that highlights the importance of having a disaster recovery plan and the steps you can take today to put your plan into action. Check out the infographic to learn how to rate your risk, tips for creating a crisis communications plan, to get a template for creating emergency wallet cards and tips for conducting a simple disaster recovery test.

The third pillar of ALTA's "Title Insurance and Settlement Company Best Practices" encourages title professionals to develop a disaster management plan.

Top8TipsInfographic

09/16/2014

How to Disclose Discounted Premium, Simultaneous Issue Rate on the Integrated Mortgage Disclosures

There has been some confusion among our members as to how to disclose discounted premiums on the Integrated Mortgage Disclosure forms. In a situation where there is a discounted premium, the discounted premium should be disclosed in lieu of disclosing the full amount and the applicable discount separately. This practice reflects CFPB’s stated goal that the integrated mortgage disclosure forms to disclose the amount that the consumer will pay for the settlement service.

Similarly, the discounted rate should also be used to calculate the owner’s title policy premium.  Discounted rates, when known, for re-issue rates, military discounts, etc. should be included in the policy premium amount disclosed to provide more accurate closing costs.

It is important to note, however, that in a situation where there is a simultaneous issue discount, a different approach should be used. The rule specifically addresses disclosure of simultaneous issuance prices and should be followed when there is a simultaneous issue scenario. When owner’s and lender’s policies are simultaneously issued, the full, undiscounted rate should be disclosed on the Loan Estimate. (Comment 37(f)(2)-4). However, on the Closing Disclosure form, the discounted simultaneous issuance price should be disclosed. (Comment 38(g)(4)-2).

The CFPB believes the use of the discounted premiums on the integrated mortgage disclosure forms provides consumers more accurate closing cost information.

Fee Naming

On the disclosures, any reference to a cost associated with title insurance must be proceeded by: “Title – [description of fee]”.

Loan Policy

As a reminder, the loan policy should be disclosed on the “Services you can shop for category.” The loan policy should be calculated as the full premium without any adjustment that might be made for the simultaneous purchase of an owner’s title insurance policy and whether the buyer or seller is paying. The enhanced policy or endorsements can be used if the creditor knows that these products will be purchased.

Owner’s Policy

Meanwhile, disclosure of the owner’s policy is a bit more complicated. The owner’s policy should be disclosed in the “Other” category and should be calculated by adding the simultaneous issuance premium to the full owner’s title insurance premium, and then deducting the full premium for the lender’s coverage. The owner’s policy must be listed as “optional” on the Loan Estimate and Closing Disclosure.

Problems with this Method of Disclosure

ALTA, the California Land Title Association and others warned the CFPB that this method of disclosing the title insurance premiums would produce consumer confusion, as the amounts disclosed on the Loan Estimate would not correlate to the title insurance rates quoted by title insurance agents in accordance with state law or the common practice in a particular geographic area.

As ALTA’s Integrated Mortgage Disclosures Task Force reviewed the rule, they discovered that this method of disclosing title premiums created two problems. First, in areas where it is common for the seller to buy the owners’ policy, the “cash to close” disclosed on both forms will be incorrect. In most states (either by regulation or rate filing) the owners’ policy is priced as the full-priced policy in a simultaneous issue situation. Thus, the disclosure will not show the consumer getting the full benefit of negotiating with the seller to purchase the owners’ policy. Second, to comply with state rate filings and regulations, title and settlement agents may need to issue a separate title fee disclosure alongside the Closing Disclosure. Most states require companies only charge rates in accordance with the rate filing. Agents may want to issue a separate disclosure to show to consumers and regulators that they charged the correct rate amounts despite what the disclosures show.

In its final rule, the CFPB said this method of disclosure can help consumers “determine if the additional cost for insurance to protect themselves from losses that result from a title defect and to provide a legal defense from challenges to their legal ownership of the property they are acquiring would be appropriate.”

The Bureau did modify its final rule to permit the disclosure of an “enhanced” owner’s title insurance policy premium when the creditor knows that an “enhanced” owner’s title insurance policy is required by the real estate sales contract.

The Bureau stated in the final rule that it intends to address issues surrounding title insurance, including the differing technical manners in which title insurance premiums are calculated, as part of updates to the special information booklet prescribed by RESPA. The Bureau plans to revise the booklet prior to the effective date of this final rule. The Bureau also indicated it may provide additional guidance to consumers about the nature of title insurance, its potential benefits and costs and the manner in which premiums are calculated.

ALTA will continue to work with the Bureau to find a solution to these problems. ALTA does not expect the Bureau to reverse their policy decision on the disclosure of title fees because they considered some of these issues when ALTA and the California Land Title Association originally brought them up during the public comment period. However, ALTA believes there may be some guidance the CFPB can provide to offer clarity on how the simultaneous issue may be disclosed. 

08/05/2014

Is Consummation the Same as Closing or Settlement?

The Consumer Financial Protection Bureau’s final rule for the integrated mortgage disclosures says the creditor must provide the Closing Disclosure to the borrower three days prior to the consummation of the transaction.

This may cause issues in the settlement industry as consummation and closing mean different things in different places. Consummation is not same as closing or settlement. (See page 51 of the CFPB's "Small Entity Compliance Guide" for the bureau's discussion on consummation.)

Consummation is the date that a consumer becomes contractually obligated to the creditor on the loan (i.e., the day they sign the note).  This is not when the consumer becomes contractually obligated to a seller on a real estate transaction.

The point in time when a consumer becomes contractually obligated to the creditor on the loan depends on applicable state law (§ 1026.2(a)(13) and Comment 2(a)(13) 1). For states that are escrow states, this could be a different date than the closing.

According to the CFPB, creditors and settlement agents should verify the applicable state laws to determine when consummation will occur, and make sure delivery of the Closing Disclosure occurs at least three business days before this event.

Loans that the Integrated Mortgage Disclosures Must be Used

Implementation of the Consumer Financial Protection Bureau’s integrated mortgage disclosures is Aug. 1, 2015. Note that there is no stagger in the roll out. All mortgage applications prior to Aug. 1, 2015 will use the current Good Faith Estimate, HUD-1 and Truth-in-Lending disclosures. All applications received on or after Aug. 1, 2015 will use the new Loan Estimate and Closing Disclosure.

The integrated mortgage disclosures apply to most consumer mortgages except:

  • Home-equity lines of credit
  • Reverse mortgages
  • Mortgages secured by a mobile home or dwelling not attached to land
  • No-interest second mortgage made for down payment assistance, energy efficiency or foreclosure avoidance
  • Loans made by a creditor who makes five or fewer mortgages in a year

Federal law does not require the use of the HUD-1 or the new Closing Disclosure in all-cash transactions. While some states have laws requiring the use of a state promulgated form in cash transactions, in general the HUD-1, the Closing Disclosure or any other settlement statement can be used in cash transactions.

How to Comply with the Closing Disclosure's Three-day Rule

According to the Consumer Financial Protection Bureau’s final rule, the creditor must deliver the Closing Disclosure to the consumer at least three business days prior to the date of consummation of the transaction. (Note that the Closing Disclosure and Loan Estimate must be implemented by Aug. 1, 2015, on certain loans.

In the final rule, the CFPB said creditors may use settlement agents to provide the Closing Disclosure, provided that the settlement agents comply with the final rule’s requirements for the Closing Disclosure.

As an example, if settlement is scheduled for Thursday then the Closing Disclosure can be hand delivered on Monday. A company could also deliver the disclosure by courier or other shipping or postal service so long as a signature is obtained from the borrower showing receipt on Monday. If a company does not use a service that provides evidence that the disclosure was received on Monday (ie: U.S. Postal Service first class mail), then it must send the disclosure by the prior Thursday. Use the chart below to help you determine when the Closing Disclosure should be sent to ensure the buyer receives it three days prior to consummation of the transaction.

Generally, if changes occur between the time the Closing Disclosure form is given and the closing, the consumer must be provided a new form. When that happens, the consumer must be given three additional business days to review that form before closing.

The CFPB listened to ALTA concerns and limited the instances that would require a new Closing Disclosure to be issued. Limiting the instances of delays in real estate transactions will help to ensure a positive experience for the consumer at the closing table.

Changes that require creditors to provide a new Closing Disclosure and an additional three-business-day waiting period after receipt include:

  • changes to the APR above 1/8 of a percent for most loans (and 1/4 of a percent for loans with irregular payments or periods)
  • changes the loan product
  • addition of a prepayment penalty to the loan

Some quick definitions can be helpful when understanding this rule. First, the starting point for determining when the three-day period starts is the day of consummation. Consummation is the day the consumer becomes contractually obligated on the loan (i.e., the day they sign the note). This is typically the same day as closing (12 C.F.R. §§ 1026.2(a)(13) & 1026.38(a)(3)(ii)). Once you have the right starting point then you need to count backwards. The three-day rule requires the counting of “business days,” which are “all calendar days except Sundays and the legal public holidays specified in 5 U.S.C. 6103(a), such as New Year's Day, the Birthday of Martin Luther King, Jr., Washington's Birthday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans Day, Thanksgiving Day and Christmas Day.” It is not a 72-hour requirement, but rather a day requirement so you do not need to know the time that closing will take place.

Lastly, while the examples the CFPB provides in the rule all focus on physical delivery of the disclosure, electronic delivery is allowed in accordance with the E-SIGN or Uniform Electronic Transaction Act laws. The timing requirements are the same as for physical delivery and would require obtaining some evidence of receipt (i.e., an email confirmation, system log or other indicia) or complying with the mailbox rule for presuming receipt three days after placing the documents in the mail.

Three-day chart