While the new October 3 effective date has given brokers and agents a little more breathing room, there is still a lot to be done in order to prepare for the Consumer Financial Protection Bureau’s (CFPB) new Loan Estimate and Closing Disclosure forms, which will virtually replace the Good Faith Estimate, Truth-in- Lending and HUD-1 disclosures used today. In this exclusive interview, Marvin Stone, SVP, Business Integration/CFPB program manager for Stewart Title, gives a crash course on the highlights of the rulings and how real estate professionals can quickly prepare.
Maria Patterson: As you know, there is still quite a bit of confusion over the CFPB rulings. Can you give us the highlights of what will change most come Oct. 3?
Marvin Stone: The thing brokers and agents will grapple with the most is that the HUD-1 will no longer be used for the majority of transactions. This will be replaced by the Loan Estimate (LE) and the Closing Disclosure (CD). These are brand new forms for everyone, even the most seasoned investor. The Bureau did a great job in making it understandable for the consumer, but it will be tough for the industry to implement because of the way it’s designed. In many states, brokers have to have a copy of the HUD-1 in the file to show how monies were distributed and this has been easy for the settlement agent to provide because it doesn’t contain a lot of non-public personal information. Now, the new final Closing Disclosure will be provided by the lender directly to the borrower. And some sort of provision has to be made to get those final CDs to the REALTORS®. In order to provide a document similar to the HUD-1 that can be distributed to agents, the American Land Title Association has developed the new ALTA Settlement Statement.
MP: The new “three business-day” rule also stands to create some havoc, correct?
MS: Starting Oct. 3, in all cases, the final Closing Disclosure must be provided to the borrower three full business days prior to consummation. If fees change at or before consummation of the transaction, the Closing Disclosure will need to be redone. In certain limited circumstances, such as an APR increase, loan program change or addition of a prepayment penalty, the lender must allow the consumer another three business days for review.
MP: What else stands to significantly change the real estate transaction as we know it?
MS: There will also be tighter restrictions on how much fees can increase between the Loan Estimate and the Closing Disclosure. For example, in the past, the appraisal fee could vary by as much as 10 percent before triggering re-disclosure. Now, there’s a zero-percent variance.
MP: Will brokers and agents who have a strong relationship with their lender have an advantage in implementing these rules?
MS: How strong the relationship is doesn’t really matter. What matters is “TRID-readiness” (TILA-RESPA Integrated Disclosure). REALTORS® really need to make sure that their lender and settlement partners know the new rules, that their software is up to date and that their people are trained.
MP: So, in your opinion, Marvin, how close are we to compliance (at press time)?
MS: One survey done back in April says that only 41 percent of lenders would be ready. Another survey says that 68 percent noted that compliance has become their biggest cost. At Stewart, we started working on CFPB compliance years ago when the new rules were first proposed. Some of the national lenders are close (at press time); some regional lenders are also close. I feel like it’s coming together, but I think it’s worthwhile for brokers and agents to have detailed discussions with lenders and settlement providers and ask them, “Are you ready?” They also need to ask what the lender’s process will be.
MP: What can brokers and REALTORS® do to quickly get up to speed on the new forms and timelines?
MS: The first thing to do is to talk to the lenders and settlement providers you work with and make sure they’re ready. The next thing is to really learn the new forms. The lender will be sending out the Loan Estimate to the borrower, and it doesn’t matter if someone has bought 20 homes or if they’re a brand new buyer—they’ve never seen this form before and will have questions. They must also educate borrowers not to wait until the last minute for upgrades or loan program changes, as that could trigger the additional three business-day waiting period.
MP: So, where can brokers and REALTORS® go to study up on these forms?
MS: The CFPB has provided a detailed summary of the final rule, which is seven pages long, and does a good job of explaining what will be changing. At Stewart, we are providing a huge number of seminars, some 2,000 events across the country. We have also seen some lenders providing education.
MP: How will the new rulings affect borrowers?
MS: The consumer benefits in a couple of ways. Number one, the Loan Estimate was created so that borrowers could shop more easily and compare from one lender to another. Both the Loan Estimate and the Closing Disclosure are designed to help the consumer better understand their future financial obligation. The Loan Estimate and Closing Disclosure really lay out what could change between what you were quoted and what happens at closing. And now, if there are changes in fees at or before consummation, the consumer must be provided with a new Closing Disclosure detailing the changes. If the borrower changes their loan program in the middle of the process, it can trigger a new three business-day waiting period.
MP: How will the new forms potentially impact broker accounting systems?
MS: All the systems and processes we have today are built around the HUD-1, so this will affect everyone from the neighborhood broker all the way up to Fannie Mae. Also, there is a new requirement that every lender will need to know every broker and agent license number involved in the transaction and note that on the Closing Disclosure.
MP: Finally, in general, do you believe the intent of the CFPB to protect consumers is actually being fulfilled?
MS: When you look at the people who were harmed financially in the collapse of 2008, it is clear that not every borrower understood the impact of some of the “exotic” mortgages. These new forms and rules should go a long way toward making a borrower’s long-term obligations more clear, which will help them avoid serious financial consequences. There will be some pain along the way, but in the long run, this will be helpful to consumers—and when the consumer wins, we all win.