CFPB AND THE REO TRANSACTION

What You Need to Know Before you CloseAugust 20, 2015

CFPB – Know Before You Close

Be able to explain the new loan Estimate and Closing Disclosure

After the 2008 financial meltdown, Congress established the Consumer Financial Protection Bureau (CFPB). Among its first tasks was the combination of forms provided to borrowers at both the beginning and end of their loan transaction. In 2013, CFPB published its final rule, revealing these two new combined forms.

CFPB – The New Forms Being Introduced

Any residential loan originated on or after October 3, 2015 will be subject to the rules and forms set for the by the CFPB. New regulations issued under the new rules will be enforced February 1, 2016

• The Rule replaces the Good Faith Estimate (GFE) and early TILA form with the new Loan Estimate• It also replaces the HUD-1 Settlement Statement and final TILA

form with the new Closing Disclosure

What does a REO Real Estate Broker Need to Know Before August?

• Timing of closings are heavily impacted by the disclosure delivery rules• You should be able to explain the new Loan Estimate and Closing Disclosure• Title fees may need to be adjusted at closing and explained• Line numbers have been removed and there are now 7 fee areas on the

Closing Disclosure• The buyer will likely receive more than one Closing Disclosure• Buyers should not expect to make any changes at closing (repair credits)• Sellers should not do anything that would require changes at closing

The New Closing Disclosure

Page 1.

• Loan terms• Loan amount• Interest rate• Monthly P&I• Any prepayment penalty or balloon payment

This page also provides the projected payments over the life of the loan and discloses to the borrower what amounts will be deposited into their impound account. Page 1 provides the totalEstimated closing costs and cash to close.

The New Closing Disclosure

Page 2.

The second page is similar to the current Page 2of the HUD-1 Settlement Statement. It providesa breakdown of all the closing cost details and lists allloan costs and other costs paid by borrower, seller and other parties.

The New Closing Disclosure

Page 3.

The third page displays a Calculating Cashto Close table which provides a comparisonTo the charges disclosed on the Loan Estimate.

This page also shows the summaries of the borrowerand Seller costs and credits, similar to the current Page 1 of the HUD-1 Settlement Statement.

Pages 2 and 3 are the pages that will be closely reviewedby the REO Broker, the Seller and the Seller’s attorney.

The New Closing Disclosure

Page 4.

The fourth page contains disclosures about otherTerms of the loan, including:

• Whether the loan is assumable• If the loan has a demand feature• May impose a late payment fee and when it’s incurred• If the loan has negative amortization feature• Whether the lender will accept partial payments• Informs the borrower the lender will have a security interest in their property

The page also includes a table describing what chargeswill be impounded and how much will be collected eachmonth. Page 4 also includes adjustable payment and Interest rate tables if they are applicable to the loan.

The New Closing Disclosure

Page 5.

On the fifth page under the heading “Loan Calculations:the consumer will find the:

• Total of payments over the life of the loan• Finance Charge• Amount financed• Annual Percentage Rate (APR)• Total interest percentage information

Under “Other Disclosures” the consumer will find:

• Appraisal (if applicable)• Contract details• Liability after foreclosure• Refinance information• Tax deductions

How will the closing timeline be impacted?

Creditor provides Loan Estimate to Consumer

• Consumer indicates an intention to proceed with Application

Copy of Real Estate Contract received by Creditor

• Title Insurance product is ordered/updated and amounts disclosed to Creditor

REO CLOSING TIMELINE

How will the closing timeline be impacted?

Creditor verifies costs for any necessary changes on the loan Estimate

• All transfer taxes, HOA Dues, municipal liens, closing cost or repair credits and all other costs affecting closing must be provided to lender for accurate loan disclosure

Closing Disclosure prepared and delivered to consumer

• Consumer must receive the Closing Disclosure no less than 3 business days prior to the consummation. If any changes must be made, the 3 day time period will start over

REO CLOSING TIMELINE

Sample Timeline

Sample Timeline

Sample Timeline

The New Role of the Settlement Agent

• On preliminary and final Closing Disclosure, title policy costs are not shown as before• Final HUD-1 is NOT executed. It is replaced with the Closing Disclosure• Closing Disclosure must be prepared and delivered by lender or settlement

Agent to buyer no less than 3 business days prior to closing• Settlement Agent will prepare and deliver to Seller the Sellers Disclosure on or

before the day of consummation.• Last minute changes that require re-disclosure:

• Changes that have the effect of increasing the APR by more than 1/8th of 1%• Changes that have the effect of changing the loan product• Changes that add a prepayment penalty to the loan

What Do Real Estate Brokers Need to do to Prepare for the Changes in the Process?

The Real Estate professional is an initial consumer touch point with a critically important role.

You are in a great position to support consumers by:

• Being well trained and informed on the new regulations and documentation• Being an active participant and effective communicator in the transaction timeline• Remembering the importance of timing and accuracy when negotiating contracts,

closing cost credits and municipal or HOA payoffs

THANK YOU FOR ATTENDING!