In Part One,we discussed the new Loan Estimate and Closing Disclosure forms that will be utilized as of October 3rd, 2015. In Part Two, we will discuss the three day rule and other items involved with the new forms implemented by the Consumer Financial Protection Bureau.
The Loan Estimate Form
The creditor or mortgage broker must provide the Loan Estimate form no later than three days after the consumer applies for the mortgage loan. An application is defined as acquiring the consumer's name, consumer's income, social security number to obtain a credit report, the property address, an estimate of the value of the property, and the mortgage loan amount needed.
Three-Day Closing Disclosure Rule
According to the new regulations, the creditor must deliver the Closing Disclosure form to the consumer at least three days prior to closing. The three-day period is measured by days and not by hours. Creditors may use settlement agents to provide the Closing Disclosure as long as they conform with the rules.
How are the three days defined?
The three-day period starts on the day of consummation which is the day that the consumer becomes contractually obligated to the loan (i.e. the day the consumer signs the note). This is typically the same day as the closing on a residential re-sale transaction. Once that date is determined, you count backwards three days. The three days are all business days except Sunday and legal public holidays.
The chart gives perspective on when the closing disclosure needs to be delivered to the consumer. You would start with the closing date and go backwards. This information is important to communicate to the buyer or seller in terms of deadlines for receiving their documents for review and having everything ready for the closing date.
How must the Closing Disclosure be Delivered?
To ensure the closing disclosure is received on time by the consumer, the form can be delivered either in person or by mailing or other delivery methods including email. If not hand delivered, there is potential for a need of an extra three days for delivery via mail.
In a purchase transaction, it is the settlement agent's responsibility to provide the seller with the Closing Disclosure. This must be provided no later than the day of consummation.
When does a new Closing Disclosure Need to Be Issued?
If changes occur between the time in which the Closing Disclosure form is given and the closing, then the consumer must be provided with a new form. The cycle begins again where the consumer is given another three days to review the new form before the closing. Instances of having to provide a new form should happen frequently.
Changes that would require a new Closing Disclosure to be issued and an additional three-day waiting period include:
- changes to the APR about 1/8 percent for most loans (and a 1/4 percent for loans with irregular payments or periods)
- changes to the loan product
- addition of a prepayment penalty to the loan
Less significant changes can be provided on the revised Closing Disclosure form before or at the closing without causing delays to the closing.
A consumer may waive or modify the three-day business day waiting period when the extension of credit is needed to meet a bona fide personal financial emergency. One example of a financial emergency would be the foreclosure of a buyer's home.
As with any change, there are some potential impacts that may occur which could affect the real estate transaction.
Here are a few that may occur with the new forms:
- Potential for longer closings
- Back-to-Back closing delays
- Delay in scheduled closing date
- Seller could back out of contract and go with another buyer and/or not agree to extension on contract
- Possible loss of earnest money
For more information on the specifics of the loan estimate and the closing disclosure form, please visit http://www.consumerfinance.gov/regulatory-implementation/tila-respa/.
Disclaimer: This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is distributed with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal or accounting advice or other expert assistance is required, the services of a competent professional should be sought.
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