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Q and A on the new CFPB Rule

Questions and Answers Regarding the Upcoming Closing Disclosure
Ruth Dillingham (Answers) and Joel Stein (Questions)

1. Q: In a recent Newsletter, Wells Fargo has stated that it intends to generate and deliver the Borrower’s closing disclosure. Do you believe most Lenders will follow this trend and should Conveyancers be concerned that the Lender will be preparing the portion of the Closing Disclosure that was previously the HUD-l? Will the Attorney still be preparing the Seller’s Side? If there are last minute changes how will those be handled?

A: At this time no one knows exactly how lenders will respond to the changes in their liability under the Truth in Lending Act for preparation of the final Closing Disclosure. Clearly Wells Fargo had determined that the risks out-weigh the benefit of having a Settlement Agent prelJare the document, but other lenders may feel that they have a sufficiently strong relationship with their closing attorney that they can allow the attorney to prepare the form for them (as is permitted under the rule).

The role of the Conveyancer in many ways will not change. While they may be delivering the information to the lender for inclusion in a lender generated document, only they have the resources to obtain certain information necessary to complete the Closing Disclosure. Furthermore, under the rule, the lender must use good faith in obtaining the amounts included in the Closing Disclosure, which amounts the lender will want to know are, in some way, ‘verified’. Examples include the amount of real estate taxes, which the Closing Attorney has ‘verified’ by means of obtaining a municipal lien certificate, or a final water reading from the town.

As for the seller’s side of the transaction, the settlement agent remains the one who prepares that document, not the lender.

As for last minute changes, there is the possibility that lenders will adopt a hybrid approach, where the lender prepares the initial Closing Disclosure and ensures delivery to the borrower in compliance with the rule, but allows some minor changes to be made by the c1os’ing attorney ‘at the table’ utilizing the Closing Attorney’s software and re-keying the lender data.

As individual conversations and attendance at recent mortgage industry programs has evidenced, most lenders are still assessing their risks and are in the process of making these decisions; there are many issues still to be resolved.

2. Q: There is increased concern b~Lenders regarding compliance by Vendors. How do the ALTA “Best Practices” fit in?

A: As lenders continue to confront their new liabilities to consumers and regulators under this rule, they are naturally looking to ensure that all of their business partners are of the highest quality. This extends well beyond conveyancing attorneys and applies to appraisers and credit bureaus and all other participants in the mortgage transaction as well. For the closing attorney looking to exhibit adherence to an impartial set of standards, the ALTA Best Practices are the best tool currently in place. While some lenders have required demonstrated compliance with all of the 7 Best Practices, others have requested responses to surveys and questionnaires to show the extent to which a firm has appropriate policies and procedures on specific issues. However, the ALTA Best Practices remain the standard that all of the information requests are measured by.

3. Q: Can you talk about the timing of the initial disclosure and revised disclosures? What does this do to “time is ofthe essence”?

A: The Loan Estimate, which combines the information now in the Good Faith Estimate and initial Truth in Lending Disclosure, continues to have the same timing triggers- it must be delivered or mailed within 3 days of application. The rule does change the definition of application, and makes a separate rule for re-disclosure once a rate is selected, but the basic timing remains the same.

For the Closing Disclosure, which combines the information now in the HUD-1 and the final Truth in Lending Disclosure, the timing has changed. Under the new rule, for a closing of a loan whose application was taken on or after August 1, 2015, the Closing Disclosure must be received by the borrower/applicant 3 business days before ‘consummation’ (which in Massachusetts is generally considered the Closing Date, since loan documents and title transfer documents are

executed at the same time and place). As a general rule, if a lender or settlement agent mails the form to the consumer, this means placing the Closing Disclosure in the US Mail a week in advance of the closing date to allow for the 3 day presumption of receipt of a mailed document. The rule does provide an exception for the time for presumptive delivery to be overridden if actual and verified delivery is at an earlier date, but that delivery date only begins the 3 day period before the closing can occur. The 3 day period for review prior to closing cannot be waived by any party with the exception of a borrower who has a bona fide personal financial emergency (using the same standard as is currently used in the context of a waiver of rescission).

If, after receipt ofthe Closing Disclosure and during the 3 business days prior to closing, there is a change of the borrower’s loan program, the addition of a prepayment penalty or the APR changes beyond the tolerances permitted under the Mortgage Disclosure Improvement Act, then the lender must re-disclose and the transaction cannot close until an additional 3 business days have elapsed.

However, for more typical changes such as an increase in the buyer’s costs due to an oil delivery, or the decision to purchase personal property, there is no need to wait an additional three days; the change can be made at the time of the closing.

The major question posed by this change in timing is, “How will this affect closing dates selected by buyers and sellers in Purchase and Sale Agreements, frequently months in advance of the actual anticipated closing?”

Some subsidiary issues to be considered are:

• The Seller is not a party to the loan transaction and therefore is not bound by the lender’s time lines. Since the contract states that “time is of the essence” it appears that a Buyer who cannot perform on the contract date due to the lender’s inability to close (due to the timing issues) is in danger of losing a deposit;

• Even if this transaction is set to closing on schedule, what about those transactions that are dependent on it for their completion (a buyer who can’t sell or a seller who can’t buy due to a lender issue);

• Will the conveyancing bar amend purchase contracts to allow for an automatic extension of time to accommodate these issues;

• What about a transaction where the lender insists on approving or re-creating an amended Closing Disclosure? Will they have staff available during non-conventional business hours?

In summary, as we all learned with the changes to the mortgage loan transaction rules in 2010, conversations will have to be had, both between lenders and their regulators and between lenders and their closing attorneys. The best recommendation now available? Keep informed and keep the lines of communication open with your lender clients as they finalize these important business decisions.