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RealXperts - TILA-RESPA: The Most Important Changes Affecting Real Estate Pros

RealXperts Real Estate Webinar SeriesOn October 3, 2015, the entire world of real estate closings was turned upside down. The Good Faith Estimate (GFE), Housing and Urban Development (HUD-1), and Truth-in-Lending forms are no longer used in most residential mortgage closings. Expert Jerry Anderson brings over 30 years of industry experience to explain how the new TILA-RESPA changes will immediately and profoundly affect you, your clients, and your closings.


Hi. Welcome to the Real Experts webinar on the Truth in Lending Real Estate Settlement Procedures Act Information Disclosure, also known as TRID. What we're going to be talking about today are the most important changes that are going to be affecting you when this new rule goes into effect next week.

To start off, I want to introduce myself. My name is Jerry Anderson. I'm an instructor for real estate and education schools here and throughout the country. I have 32 years experience in the mortgage business, title business, and real estate business. I am also currently licensed as a real estate broker and a mortgage originator. The reason why I'm teaching this course and telling you this story is because this is a really important change that's coming down the pike. And there's been a lot of concern by mortgage lenders and real estate agents about what's going to happen with this new change.

I'm going to say it to you right out from the start; this change was necessary. Nobody likes change, but this is one that really needs to be done, and it's going to happen so we have to accept it and embrace it. The following is the topic overview that I'm going to be covering in this course. We're going to talk about the consolidation of disclosures, lender delivery requirements of the disclosures, I'm going to touch briefly on who is the CFPB, the mortgage lender's record retention requirements, and then I'm going to get into emerging issues or what's called my tips.

And last, or probably most importantly, just so you know, there are over 1,000 people across the Unites States that have registered to watch this webinar today so I've got a pretty big group. But when I'm talking to you, I'm talking to only you. It's just you and I, in a screen. And so I'm hopefully giving the information that you want to know, but if I don't, feel free to type in a question. You were instructed on how to type in your questions when you registered for the class. I have a team of people behind the screen right now that'll be intercepting those questions, digesting them, and then, at the end, they're going to be sending to me for me to answer, hopefully, the right answer, for you when we're all done. So, when you start off your weekend, or you start out next week with the new TRID rules, you're going to have a good understanding of what's going to happen so that you get to your closing successfully.

The new rule came from what's called the Real Estate Settlement Procedures Act-Truth in Lending Act and it's been all put together in its Integrated Mortgage Disclosure Rule, known as TRID. It's a consolidation of existing disclosures, I believe there were eight of them, and it's now down to two different disclosures, and the two different disclosures have all the information right within them. Every lender, going back to 1974, was required to provide the buyers . . . now, again, let's talk about you for a second because I don't know exactly what you do. You might be a real estate agent or you might be a mortgage person. Welcome, it's nice to meet you.

If you're a real estate person, you never really got involved in the Truth in Lending Act or the Faith Estimate. That was the mortgage lender's job. They put it all together and the form that they use is called the Truth in Lending document or TILA. And then, the other is the Good Faith Estimate. They put it all together. Now specifically, this new rule mandates the use of two disclosures and here's the scoop. The new forms will replace the Good Faith Estimate, the Truth in Lending Disclosure, and the HUD 1 settlement statement. Those are the forms that all of us have become accustomed to seeing over the last, well, it's been, gosh, what, 40 years.

The new statements are now going to be called the Loan Estimate or . . . and, by the way, get used to this. The mortgage industry is good about acronyms. So the new loan estimate, which replaces the Good Faith Estimate, is now known as the LE. And the disclosure statement that's replacing the HUD 1 is known as the Closing Disclosure, or CD. And don't get CD confused with a contract per deed. So if your mortgage originator or the title closer says, "I'm going to be issuing the CD or the LE," they're meaning the Loan Estimate or the Closing Disclosure statement.

Now, with this new TRID change, the Loan Estimate must be delivered or placed in the mail no later than the third business day after receiving the consumer's application. So let me just touch on that for a second. What that means is that a buyer purchases a house. They've got a purchase agreement and they walk into their lender and they say, "I want a loan. I need to get a home loan to put this transaction together." Once that's done, the buyer's made their application.

By the way, I'm going to talk about this. There have been some changes on what's considered an application. We'll cover that a little bit later on in the presentation here. But the mortgage originator or the lender is required to deliver the loan estimate within three days of that application. Now, what that means is that the lender could deliver it right there. Right on the spot, one to one, they could deliver it. The three days has been met. Now, in my interviewing and research for this TRID change with . . .

Just so you know, I've talked to banks, mortgage banks, mortgage brokers, credit unions, and title companies, and I've seen all sorts of videos. And by the way, I've got more information than you'd ever want to take a look at. And I will admit that there are some various lender's interpretations of what the TRID rule is, and how they're going to handle it. You need to speak to your lender about what they're going to consider to be delivered. Some companies will hand deliver the loan estimate.

Most companies, from what I'm catching, are going to do it in a form electronically because they've got a separate disclosure department, like your large banks. So they're going to send it via email and then there's a process that the consumer has to follow to show that they've received that Loan Estimate. Then, there are some lenders that will also do it regular, good old US Post Office, and some call it snail mail. In that particular case, all they have to do is show that it has been delivered within three days of application and they're going to do that via the post stamp, or the postage meter.

Now, the same applies with the closing disclosure. That has to be provided to the consumer at least three business days prior to consummation. I want to say this is so important. In all of my years and experience, and by the way, I've been at every side of the table, mortgage, real estate, title, representing buyers and sellers, as an originator, as a branch manager, as an owner of a mortgage company, and there's nothing more embarrassing when you go to the closing and there was no HUD 1. There were no funds. The buyers didn't have a clue how much cash to bring to closing. The sellers are sitting there, the van's loaded, the kids are nipping at their knees going, "Hey, we've got to go." That practice with this new TRID rule is now over, it's done. Your clients, whether they're the buyer or the seller and you as a real estate agent, if that's what you do, you're going to be receiving that information at least three business days prior to consummation.

Now, I wanted to cover something just for a second that real estate agents may not be aware of. In the mortgage world, business days include Saturdays. In real estate, business days do not include Saturdays. So let me just give you an idea of what I'm talking about. If a buyer makes application today and today is Friday, they make application, the lender delivers that loan estimate. They could do it today, but actually, they have until Saturday, Monday, Tuesday. Until next Tuesday, they have to deliver that Loan Estimate. Excuse me, catch me saying it still. Old habits. The same goes for the Closing Disclosure statement. Let's say that your closing is next Friday. The lender has to make sure that they have delivered that Closing Disclosure statement at least three days before, so that could be Tuesday, Wednesday, Thursday. Or actually, it could even be Wednesday, Thursday, on Friday. So it was delivered on Wednesday, closing on Friday, you should be fine to meet the minimum three business days for a settlement or closing.

Now, the TRID rule applies to what's called a closed-end consumer transaction. A credit transaction. I'm just going to say that it's for all mortgages. If you sell residential real estate, the TRID rule applies. So, single-family, townhouse, condo, some other types of real estate would apply, but it's residential, yes, that's what it means. Also, TRID rule applies to open-end credit transactions. Now, those are ones where it would typically be like a second mortgage or something like that where the balances are paid down and there's a specific end, and the borrower doesn't have the ability to draw against it for a future period or need.

What the TRID rule does not apply to is what's called the HELOCs. Now, just so you know, that's another acronym in our industry, HELOC means home equity line of credit, or you might know them as a line of credit that you would get through your local bank or credit union. The TRID rule does not apply, meaning when it doesn't apply, is that the lender doesn't have to provide the Loan Estimate and the Closing Disclosure statement in those particular periods of time. They have a different form or format. That doesn't prevent, by the way, that lender from issuing a Loan Estimate and a Closing Disclosure statement. I'm going to let you know, in my interviews with the various types of lenders, that's still up in the air. You want to speak to your lender about whether they're going to do that or not as it applies to HELOCs, or home equity lines of credit.

The other types of loans it doesn't apply to is reverse mortgages. Now, reverse mortgages are those for seniors, people over the age of 62. Or, mortgages that are secured by a mobile home or dwelling that's not attached to real property. So the TRID rule does not apply in this particular case.

Now, the question comes up, says, "When do I have to start following the TRID rule and using the new Integrated Disclosures?" The date, you want to circle it, highlight it, mark it in your calendar, whatever you want to do, it's October 3rd. Now, for those of you that don't have a calendar in front of you, I believe October 3rd is next Saturday. I don't know about many mortgage originators who would take an application next Saturday, but that's the day that it starts. Okay? Make sure that you know.

Let me back up for a second. Let's talk about that. If you have a client, by the way, loan officer, real estate agent, doesn't matter, if you have a client right now that's currently in process with a lender, and they've been preapproved for their financing and they're still out shopping for their home, and I'm sure you've got them, everybody's got one or two out there that are still shopping. If they purchase a home between now and October 3rd, that lender will be following the current existing rules of issuing a Good Faith Estimate and providing a HUD 1 foreclosing. And just so you know, the HUD 1 rules under RESPA, the lenders are required to have it to the borrower one day prior to closing instead of three business days. Okay?

Now, in relation, or in respect to the fees that are going to be charged as a part of the TRID rule, they did tighten the screws a little bit about what is considered lender charges and what can change and what can't change. I'm not going to go into great detail because of time, of all the various charges. I'm going to try and keep it simple, so, in the screen in front of you, basically you see the word "Zero Tolerance." What zero tolerance means is that once the lender issues that Loan Estimate, meaning the buyers made application, they issue a loan estimate, any fees being charged by the lender, they cannot change. That's it, period, paragraph, end of statement. Now, there are some exceptions, which I'm going to cut in a little bit later, but in most cases, once that buyer's made application, that loan is locked. The application fee, origination fee, doc prep fee, underwriting fee, appraisal fee, ding-ding-ding-ding-ding, we can go on and on. Those fees, they are what they are.

On the lending standpoint, by the way, I do respect and appreciate, you guys have had a difficult job in determining what is going to be the exact appraisal fee because there is a variance in that, or what if I have to do a certain or additional tasks where additional costs being occurred. What this new rule is, as it is applied, the lender eats it. Okay? The consumer doesn't. So if a lender quotes $395 for an appraisal and the appraiser has to do additional work, or make a second call, or has to do a final inspection, if that is not already on the Loan Estimate, the lender eats the fee. Period, paragraph, that is it.

Now, there are other charges that are a part of the real estate transaction, are called third party fees, and I'll keep that kind of generic as well. Third party fees would be your title company, the service provider, where you're going to go to handle the closing. In that particular case, there's what is called the 10% tolerance. Now, so when the loan estimate's issued, the lender is going to say, let's say . . . and I'll just use simple numbers. The lender's going to say, "All third party fees are $1000. And here's the name of the title companies that we use that are approved for you to go close at." If the consumer uses one of those lender's list of title companies, the title fees, those third party fees cannot change by more than 10%. So if it's $1000 in the original Loan Estimate, at closing, it would be no more than $1100 total. Or basically, a $100 maximum increase.

Now, it's important to note, and real estate agents, I want you to be aware of this because I have a team of real estate agents that work with me. God love you guys. If the buyer chooses their own title service provider, the lender allows them to do that, of course. But if they do, then there is no limitation on the 10% rule, no limitation on what the title company can charge. So, as an example, the lender issues a loan estimate and says the fees are $1000, and the buyer says, "I've got my cousin Billy. He's a closer over at ABC title in Biwabik, Minnesota. I'm going to use him." Well, that's great, you can go ahead and use Billy, but when they go to closing, and Billy charges that buyer $2000 in fees instead of $1000, the lender's not liable, the transaction can still close, but the problem you're going to have is did the lender verify that the buyer had the $2000 to pay for those title fees? Last, or the third part of the fees that are charged in the transaction, are the prepaids for taxes and insurance and per diem interest.

Another thing for my real estate agent friends, and for those mortgage companies that are a little bit worried about what to put in, I did get this defined. Inspection fees, association, it's called condo resale disclosure fees, things like that, those, there is no limitation on. You can put them on a Loan Estimate if you want, those fees that are outside of your transaction. But it was confirmed through the Consumer Financial Protection Bureau that they don't have to be and there is no limitation. So if you put on a Loan Estimate there's $500 for prepaids and inspections and so on, and it's $1500, that's the number. The buyer's going to be paying $1500 at the time of the closing. Okay? Very important to note that.

Now, we're going to get into the new definition of an application. That's now changing as of October 3rd. They basically refined it, or let's say closed it up a little bit because the lenders were open to deciding what is considered an application. Here it is, there are six points. An application is determined to have started when the buyer gives their name, they've given their income, they've given their social security number, they've given a property address, now property address on a purchase would be on the purchase agreement. On a refinance it would be the home that they're living in.

The next would be the estimate of the value of the property, and in a refinance, that would be whatever the borrower gives. On a purchase, it would be whatever the number is on the purchase agreement. And then, last but not least, is the mortgage loan amount sought. What was taken away from the open-ended application definition is it would state that in any additional information as determined by the lender to make a loan decision. That's no longer a part of the application. So it's name, income, social security number, address, property, and loan amount. Once the lender has that, then the TRID processes start. Meaning, three days for the delivery of the Loan Estimate, and subsequently closing, delivery of the closing, disclosure statement.

All right. Many of you are probably already aware, or even say many, but I'm talking to you one on one here, but you may be aware of what the Consumer Financial Protection Bureau is. I just want to remind you, they are the entity, the federal agency that oversees us and what we do. And what I mean by that is, most importantly, they are the enforcement arm of our lack of compliance, non-compliance, or maybe fraudulent activities. Now if you do something wrong, the CFPB is going to be coming to you and putting you through the process. So that you know, they monitor our business activities on a daily basis.

I would encourage you, if you haven't done this already, to go to their website and kind of surf around and see what they're doing. There's some great information and you're going to see what consumers are putting in about their frustrations and problems they've had with their process of a real estate transaction. And then last is documentation. The CFPB has created the forms for us to use which specifically today, we're dealing with is the Loan Estimate, and Closing Disclosure statement.

A couple of other key changes for the mortgage industry, not the real estate industry, the mortgage industry, it's important to know, record retention. By the way, whether you're a mortgage broker, a mortgage banker, this all applies. Keep it real simple. You have to retain a copy of the Loan Estimate and the Closing Disclosure statement for five years. Okay? If you sell the loan, the servicer also has to maintain that. You send them a copy. If you're getting from origination to servicing, you have to maintain it. But it's a five-year period that the documents must be saved or maintained.

Under regulation X and regulation Z, applies to the Loan Estimate and Closing Disclosure statement, they do not require but allow electronic record keeping. So what that means is that you are able to scan and save that on whatever form that you would save your documentation. That has been confirmed. There was some confusion on that. So, you don't have to go out and buy 800 file cabinets and have to have all these papers stacked up in the back of your office or some garage somewhere. You can put them on a CD or put them on that cloud thing that's out there that I still don't quite understand.

Records can be maintained by any method that reproduces the disclosures and other records accurately, including computer programs. So, just so you're aware, if the CFPB comes down, and says, "Hey, we want to take a look at your closings that occurred in November of 2015," if you have software that can produce the docs and you can email it, that's what the process is going to be. But if you do it in a hard copy form, which some people do, by the way, still today, you need to make sure you have access to that and can provide to them in a timely manner.

As I mentioned earlier, creditors will be required to use the Good Faith Estimate, the HUD 1, and the Truth in Lending up until October 3rd. So if your buyer is in process right now, you use the old forms. If they enter into a purchase agreement because you've got a property address, or you've got a value, prior to October 3rd, you do it the way that we've been used to the past 40 years. But as of October 3rd thereafter, if they enter into a purchase agreement or they start the process, they do what's called the intent to proceed, then the new forms will be required.

Now, there might be some confusion for you in the real estate community because you're all panicking, thinking "Oh, October 3rd, let's say on October 7th I've got a closing, and I'm going to have this new Closing Disclosure statement that needs to be delivered to the buyer 3 days in before, blah blah blah," that's probably not the case. You're going to see the old HUD 1, more than likely you're not going to because of timing purposes, you're not going to be seeing the new Loan Estimate until probably after October 6, I think October 5th is a holiday, so it would be some time after October 6th that you'll see the Loan Estimate, and you probably won't be seeing the Closing Disclosure statement until probably November.

Now I'm going to stop there for a second. For you guys in the mortgage business, I hope you appreciate what I'm going to tell you, what I'm going to say here. Real estate agents, give your lender at least 30 days, and in my opinion, 45 days for any sales that you write up after October 3rd, until the end of the year. I'll repeat myself. Give your loan officer at least 30 days, and recommended 45 days, after October 3rd, until the end of the year, so that everybody can get their stuff together, that you can have a successful closing. After January, everybody should be rolling, things should be smooth, you should be able to have a closing done in about 30 days. Realistically, the days of trying to close a real estate transaction in 10 to 15 days is probably not going to be very likely due to the delivery requirements imposed by the CFPB to the consumer by the lender.

In front of you are some links regarding the updates from the Consumer Financial Protection Bureau. I was just there yesterday, I've printed these up. I've saved them, a hard copy in my drive. You should do the same if it's important to you. I'm just going to say to you, call your loan officer, call your lender, real estate agents, loan officers, after this webinar today, get together and give each other a big hug because that's what it's going to take to get this thing processed.

Here we go. Will the new mortgages disclosures . . . this is a question. Will the new mortgage disclosures delay my closings? And the answer seems to be typically no. In most cases, your loan officer's already doing these practices and following the rules accordingly. But in a situation, here's the scoop. What can affect or delay your closing is if the APR, meaning the Annual Percentage Rate, increases by more than ⅛%, a new disclosure and time period is going to be required. Meaning, another three days. Second, if there’s a decrease in the APR, it does not require the three-day. But if it changes the interest rate, it may, or some other fees. If the lender issues a prepayment penalty, at some time from the date that the Loan Estimate was issued, to the time of lock in and closing, a new disclosure required. A new three days. That will delay your closing.

And last, but probably most important, and for those of us that are in the real estate side, if you're selling real estate, is the buyer starts out with an FHA transaction and sometime during the process, probably from the home inspection, it has to switch from an FHA loan to a conventional loan. In that particular case, we've got what's called a product change. Then, new disclosures are going to be required. That possibly could delay your closing. That's what I'm getting at about 30 to 45 days now so we get through that process.

Now, here are my tips for you. We're getting close to the end. First, the lender is an integral part of the transaction. They always have been. They have the money, they got the gold, they make the rules. But they have to follow these rules. They didn't create these, the Consumer Financial Protection Bureau created them. So what's important is that you be informed, you be involved, and you call. Okay? If you don't understand what's in front of you, if you're turning in a transaction and you have a question, you call the loan officer and you ask the question. And really, the most important question is can I meet the closing date as set forth in the contract?

Second, charges to the Loan Estimates or Closing Disclosures can change. If they do change a Loan Estimate to the closing, that could delay your closing. It's not going to be very likely, but it can happen. Another thing here is that changes to the purchase agreement, which includes your home inspections and things like that, if you have a problem with a home inspection, and you're going back and forth on negotiation, you want to make sure that you're in contact with your lender to find out if they're still going to be able to meet your expected closing date as it's been represented in the contract.

The next thing I think is really important and a lot of people wait until the last minute in regards to homeowner's insurance. And if you're in a part of the country that has some flood insurance, same thing. First of all, every real estate transaction, whether there's mortgage financing, the lender is going to require that the buyer have homeowner insurance. Hazard insurance it's also known as. Fire insurance. I don't care, call it what you want. The day that you're entering into the purchase agreement, that you're trying to get a final acceptance date, your client, the buyer now, should be on the phone with their insurance agent to confirm what is the amount on the premium that's going to be on that house. And so that you understand, if that premium is off by more than one dollar per month, that could affect a successful closing. So get your homeowner's insurance up front. The same applies to flood insurance.

While TRID is brand new, like I've said, stay in touch, contact your buyers and sellers and keep them informed. Talk to your title closers. Oh, I was going to tell you, too. Something I found yesterday, ALTA, American Land Title Association, in regards to the number of days in a calendar, they've got a really cool chart. You can Google it. Go online, just type in "ALTA timing chart," or "TRID chart." And you can pull up and print it out, and it shows you every day of the week, and Loan Estimate, Closing Disclosure. Day of Issuance, Day of Closing. Now, that's the form I think is probably the most useful tool. You can put it as a part of your book and your presentation, working with buyers and sellers. But, most importantly, you want to make sure that this chart is followed by the lender that you're doing business with.

Okay. Here we are, we're wrapping it up. And so now, with my team, they've put together quite a few questions. So let me put this down. I've got my mouse, and scroll down, and let's get in some questions. I can sing to you while we're here, but I'm not going to do that because you guys don't want to hear my voice. We're having a little issue of having the questions come up.

But while we're waiting for that, let me just try and maybe cover a couple other things that would help you answer, maybe, a question you have. If you have a question, do the Google. Type in "TRID," it's going to give you all of the details, more than you would ever want to know. Get that ALTA chart so that you know your days. Means the American Land Title Association's TRID chart for the delivery of the Loan Estimate and Closing Disclosure.

I just had the questions come up. And they asked a question, the first one is, "Do these rules apply to manufactured chat alones," and I'm going to say, probably say manufactured homes, if it's attached to real estate, the answer is yes, the TRID rule applies. If it's in a park, where it's a manufactured home, or mobile home where they don't own the land, then the TRID rule does not apply, just like it would be in the past where RESPA does not apply.

Still have questions coming in. Here's one. It said, "Is there concern if the buyer decides to change the lender?" Absolutely! That's a great one. And by the way, that does happen. And I don't think the CFPB really thought through this because, first of all, if you think about it, the Real Estate Settlement Procedures Act was created, really, for two specific reasons. The first was it was created for disclosure of fees, encouraging the buyer to shop. So the buyer can take a look and say, "Okay. This is what it is." And a buyer, technically, and probably a lot of you in the real estate business have said to your buyer, "Here are three business cards." When I was originating loans, I was one of two other loan officers that my real estate agent would give them and say, "Go to Jerry, go to Fred, go to Toby. Get the price and then you choose who is the best." And the real estate agent stayed out of it.

The second part of RESPA was to prevent kickbacks, which is another class you can come back and watch another time, probably coming up soon. But, here's a concern. If a buyer makes application with one particular lender, and that lender, by the way, has issued the pre-approval letter and they've issued the loan estimate, that's fine, it's all been done. But maybe five days into the transaction, the buyer says, "You know, I've found somebody else I want to go to," that's fine. The buyer has every right to do that. The new days start over. So you'll want to be very aware.

And in some cases now, I've not seen this brought up yet, but in some cases, you might want to have it in the purchase agreement, for you real estate agents, in the purchase agreement that the buyer has chosen, let's call it Bob's Bait and Mortgage out of Biwabik, Minnesota. That's the lender. It's in the purchasing agreement. And in the event that it changes, you need to change the terms of your contract.

Okay. Some more questions. Back to . . . make sure they're doing the Google, I'm trying to make sure I'm reading these questions as they're going through. There's a bunch. Somebody came back and said, "Well, this really hurts the buyer. They say preventing them the right to shop." And, I'm going to say to you, yes it does. If you think of it from the big picture, the buyer really is going to be pinned down on that particular loan program with that particular price the day they entered the purchase agreement. I think that's where us, as real estate professionals, we need to step back when we're going through the negotiation process and say to the buyer, "Hey, do you like the interest rate that you've seen? Have they provided you with what's called a cash to close worksheet?"

And let me stop for a second on that. That's something I just found out yesterday afternoon. There are some lenders that have interpreted the CFPB rules, I think incorrectly, but I don't make the rules, I'm just telling you the way I read them, where they're not going to issue a consumer a cash to close worksheet. If that's the case, I'm going to tell you, find another lender. Every lender should be, and I know the CFPB, and I know there's language right in that booklet, in one of the links that I gave you, it states in there that the lender can issue a cash to close worksheet as long as . . . they have verbiage in there that this is strictly cash, estimate worksheet and a loan estimate will be provided when an application is made. And so that you know, though, once the lender's issued a loan estimate, they can't do a new cash to close worksheet or change up the terms unless the circumstances have changed.

Oh, I just got another question that came up. It says, "Do these rules apply to every state?" The answer is yes, all 50 states apply.

So, hopefully, I've answered enough questions for you guys and you found it . . . information, we appreciate you coming to Real Experts and learning about what's going on in our industry. Feel free to send us any other emails or contact us at any time with any questions you have. Thanks and have a great day.