Big Changes to the Settlement Process are on the Horizon

BIA | Builder Update Magazine

As you may have heard, a new Real Estate Settlement Procedures Act (RESPA)/Truth in Lending Act (TILA) integration rule goes into effect soon that significantly changes the settlement process. Originally slated for an August 1, 2015, implementation date, the effective date has now been moved back to October 3, 2015. The final rule, sometimes referred to as “TRID”, integrates existing disclosures with new requirements from the Dodd-Frank Act to replace existing RESPA and TILA disclosures with a single disclosure to include information previously contained in two separate disclosures. These changes will impact lenders, title agents and real estate professionals as well as homebuyers and sellers. The major changes the rule implements include: (1) a new Loan Estimate form which replaces the Good Faith Estimate and initial Truth-in-Lending disclosure which must be given to the consumer within three (3) business days of application; and (2) a new Closing Disclosure form which replaces and combines the HUD-1 and final Truth-in-Lending disclosures and must be received by the consumer three (3) days before consummation of loan.

The Loan Estimate is required by 12 CFR Section 1026.19(3) and the contents of the Loan Estimate are enumerated in 12 CFR Section 1026.37. The Loan Estimate is provided by the lender or mortgage broker and must be delivered or placed in mail within three (3) business days of application, which includes Saturdays if the lender is open that day. The Loan Estimate must contain estimated settlement and transaction charges, but such estimates are subject to tolerances.

The consumer must receive the Closing Disclosure form at least three (3) business days before the Closing. If changes occur between the time the Closing Disclosure form is given and Closing, the consumer must be provided with a new form. If that happens, the consumer must be given three (3) additional business days to review that form before Closing. Exceptions to this extension are when changes in costs are as a result of agreement between the seller and buyer, fees that are generally not known until after Closing, and changes which collectively total $100 or less. Changes triggering a new Closing Disclosure and the applicable three (3) business day extension include changes to the APR above 1/8 of a percent for most loans, changes to the loan product and addition of a prepayment penalty to the loan. The Closing Disclosure, which is provided by the lender, must inform the consumer of risk factors such as prepayment penalties or balloon payments, the loan amount, the principal and interest payment of the loan and how it could vary and closing costs. If the loan is an adjustable rate loan, the form will state the projected minimum and maximum payments under the loan. The Closing Disclosure form does not retain the current line numbers on the HUD-1. Therefore, revisions will be necessary on template documents utilized by lenders and title companies. Generally, the fees disclosed on the Closing Disclosure form will be itemized alphabetically. The Closing Disclosure form limits the instances in which closing costs can increase. Charges for the following services cannot increase for: (1) the lender’s or mortgage broker’s charges for its own services; (2) charges for services provided by an affiliate of the lender or mortgage broker; and (3) charges for services for which the lender or mortgage broker does not permit the consumer to shop for the provider. Charges for other services can increase, but generally not by more than ten percent (10%) in the absence of an exception. If a service is not required by the lender, there is no restriction on cost increases.

What are the practical implications of these changes? An industry insider suggested that at least initially we could be in for a “nightmare”. While larger lenders have been proactive in preparing for these changes, small town lenders tend to be behind the eight ball. Closings that were previously conducted within three (3) days may take as long as ten (10) days. Primarily, be prepared for delays and more delays as all effected parties get used to the new processes and forms. This is just a brief overview of the requirements of the Loan Estimate and the Closing Disclosure forms; there are more changes in form and process than could be fully described in this article. For additional information please see the Consumer Financial Protection Bureau at