21 posts categorized "Integrated Mortgage Disclosures"

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

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? 

 

09/16/2014

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

05/29/2014

Listen to Recorded Webinar on CFPB's Integrated Mortgage Disclosures

More than 600 title professionals attended ALTA's webinar on May 20 titled "New Era In Closings: Prepare Now for the CFPB’s Integrated Mortgage Disclosures."

Speakers included Cynthia Blair of Rogers Townsend & Thomas, Ben Olson of Buckley Sandler, Mary Schuster of op2 and Dan Wold of Old Republic National Title Insurance Co.

The Webinar addressed some of the biggest workflow and process challenges title and settlement agents will face as they transition from today’s HUD-1 and GFE to the Closing Disclosure and Loan Estimate, which become effective Aug. 1, 2015. Who fills out and provides the Closing Disclosure to the homebuyer, the three-day rule, redisclosure, calculating title premiums when policies issued simultaneously, labeling and listing of title fees, are some of the issues the speakers discussed.

03/24/2014

How To Show Fees on Closing Disclosure When Buyer and Seller Split a Closing Cost

We received the following question from an ALTA member:

When a seller is paying a portion of a tolerance-related settlement charge, how are the seller and buyer’s obligations shown on the Closing Disclosure Form?

Example: The Loan Estimate for Title – Settlement Agent Fee in the Services You Can Shop For section C is $502.  The consumer selects a provider who is on the creditor’s list and the final charge is $500.  The purchase contract assigns one-half of the charge to each party.

When the buyer and seller agree to split a closing cost in the sales contract, the settlement agent/attorney would split the fee between the buyer's and seller’s columns on page two of the Closing Disclosure.

The detailed breakdown of closing costs are shown on page two of the new Closing Disclosure. This form includes separate columns for costs that will be paid by the buyer, seller or other third party at or before closing.

The person filling out the Closing Disclosure can assign all or part of any one closing cost among those columns. In the instance where the buyer and seller will equally split the settlement agent's fee, the person filling out the Closing Disclosure would list half the fee in the buyers column and half in the sellers column.

03/10/2014

Listing Settlement Fees on Integrated Disclosures When Consumer Does Not Shop

As required, we currently provide a Service Providers List, listing only 2 suggested settlement agents and title agents.  We provide the GFE using fees of one of those companies.  If the member decides to let us continue with that company as the settlement and/or title agent, is that company’s fees considered Services You Cannot Shop For or Services You Can Shop For on the new Loan Estimate document?  The lender could always decide to use a different closing or title agent during the processing of the loan.

A settlement fee does not move from the “Services You Can Shop For” category to the “Services You Cannot Shop For” category when the creditor allows the consumer to shop for a service, but the consumer elects not to shop or chooses a provider that is on the creditor’s written list. This distinction is found in the Official Interpretations at 1025.19(e)(ii)-3.

For good faith or tolerance purposes, if the consumer is permitted to shop for a service but elects not to or chooses a provider identified by the creditor, the fee is included in the bucket of costs subject to a 10 percent tolerance. If the consumer elects to shop and chooses a provider not identified by the creditor than the fee would not be subject to any tolerance.

The Interpretations include the following example on the subject: “For example, if, in the disclosures provided pursuant to §§ 1026.19(e)(1)(i) and 1026.37(f)(3) [the Loan Estimate], a creditor discloses an estimated fee for an unaffiliated settlement agent and permits the consumer to shop for that service, but the consumer either does not choose a provider, or chooses a provider identified by the creditor on the written list provided pursuant to § 1026.19(e)(1)(vi)(C), then the estimated settlement agent fee is included with the fees that may, in aggregate, increase by no more than 10 percent for the purposes of § 1026.19(e)(3)(ii).”

When allowing a consumer to shop for a settlement service provider, the creditor must identify to the consumer the service for which they are permitted to shop and provide a written list of potential providers. 12 CFR 1026.19(e)(1)(vi). The written list must identify at least one available provider of that service and include a clear statement that the consumer may choose a different provider for that service.

Further, the list must include sufficient information for the consumer to contact an identified provider such as the name under which the provider does business and the provider's address and telephone number. Lastly, a creditor does not allow a consumer to shop when the written list consists of only settlement service providers that are no longer in business or that do not provide services where the consumer or property is located.

See form H-27 of appendix H to this part for a model list, which begins on page 1,561 of the final rule.

02/27/2014

What Document Should Be Used for Sellers After August 2015?

Several people have asked what document should be used as the settlement statement or Closing Disclosure for sellers after August 2015, when the CFPB’s final rule for integrated mortgage disclosures goes into effect.

Because the Closing Disclosure includes non-public information about the buyer’s loan, such as interest the rate, there have been concerns about how the final rule affects privacy components of the Gramm-Leach-Bliley Act and ALTA’s Best Practices.

When the rule goes into effect Aug. 1, 2015, sellers will also  receive a copy of the Closing Disclosure. Under the rule, settlement agents will provide the seller with the Closing Disclosure reflecting the terms of the seller’s transaction. Due to privacy concerns, the Bureau will allow settlement agents to provide buyers and sellers with separate versions of the Closing Disclosure only showing information relevant to their transaction. These seller and buyer specific forms would be completed in accordance with 12 CFR § 1026.38.

To help illustrate the point, the Bureau produced a sample of a seller only Closing Disclosure at appendix H-25(I), which can be found on page 1,545 of the final rule. As a side note, if the transaction is an all cash sale or a business or investment sale not subject to RESPA, then the buyer, seller and settlement agent are free to agree to their choice of forms or state mandated forms as required.