Closing Disclosure: How To Read This 5 Page Form

The Mortgage Closing Disclosure is a form that consists of five pages and needs to be disclosed three days before closing. The initial Closing Disclosure also referred to as the CD, has much updated accurate numbers with regards to actual closing costs versus the Loan Estimate (LE). The mortgage closing disclosure form was replaced with the HUD settlement statements effective October 3rd, 2015. Consumers and Mortgage Industry Professionals took the launch of the launch of the CD very well.

Closing Disclosure Replaced The HUD-Settlement Statement

The CFPB  launched the new Closing Disclosure Form replaced the HUD effective on October 3rd, 2015. Right, when everyone thought that we were done with new mortgage regulations then comes the launching of new mortgage regulations. Nothing is wrong with replacing the difficult to understand Good Faith Estimate, also referred to as the GFE.

CD Simplified To Make It Easier For Consumers To Comprehend 

Mortgage industry experts welcome simplifying mortgage disclosures with simpler-to-read forms and streamlining the hard-to-understand forms. However, with the new Loan Estimate and Closing Disclosure Form, borrowers need to wait three days after receiving the Closing Disclosure Form in order to close their mortgage loan. This will create an industry nightmare In this article, we will discuss and cover Closing Disclosure Form Replacing HUD On Mortgage Transactions.

Waiting Period Prior To Closing After Closing Disclosure

The CFPB is implementing the three day wait period to protect the consumer so the consumer can take their time in reviewing the Closing Document:

  • Unfortunately, this will end up harming the consumer with the closing delays they will be experiencing and cost much more for mortgage companies to implement these new rules in terms of adding more manpower in compliance
  • The CFPB is about to introduce a new form that will alter the way Real Estate transactions involving financing are done
  • Gone are the days of last-second closings, and final minute changes

As of August 1st, 2015 all things that can alter an APR or cause a material change to the buyer of $ 250 or more will automatically trigger a re-disclosure, and extra waiting time for all parties involved.

Lobbyists In The Mortgage Industry

Some lobbyists, one of which may be running in next year’s elections, felt that home buyers, like current homeowners, should have a three-day rescission or free look opportunity that their refinance owner-occupied counterparts currently enjoy. So as part of the Dodd/Frank financial overhaul, certain measures were given dates of enforcement, so as to ease the changes into a market already reeling from the biggest mortgage meltdown in decades.

RESPA Enforcement

RESPA, the current regulating body that enforces the HUD or final bottom line statement to buyers and sellers, will now be replaced by TILA. TILA is much more punitive, as some industry experts are saying as evident by the current fines being pushed by the CFPB.

Changes In Closing Disclosure Form Replacing HUD

The changes, in a nutshell, will require the 3-day free look provision. Once the loan is cleared to close, the buyer, and or refinance borrower, will be required to receive a closing disclosure form replacing HUD which is a five-page document that shows all costs and even discloses services that one can shop (ex. buyers policy title). At the beginning of the process, they will be required to receive a loan estimator, which has some unique features, including the percentage of payment going towards an interest in the first few years(50-70%). This document will replace Truth In Lending and Good Faith Estimate. The closing disclosure form must be in the hands of the borrower no later than 3 business days before closing.

Other Changes With New Regulations

Some factors to consider are if the borrower can receive correspondence through email, and if so, should it have a time stamp? What if the borrower does not use email? If you mail it to them, then you must give them a 3 day delivery period on top of a 3-day free look period according to the Bill. That is another 6 days added to a closing potentially. Then you have the consideration of the loan is a refinance, they already have a 3 day right of rescission. That means all refinances will take 6 days from the time of CTC (clear to close), and not a day less.

What Are Some Other Concerns?

Most loans have a rate lock expiration date, so will there be any extensions granted in the short term? If not, what does that mean for deals that expire because a third party (attorney, appraiser, surveyor city inspection, could not get figures or services rendered before this rate expired?

Other Factors And Concerns With Disclosure Form Replacing HUD

Another factor to consider is who will provide the form, and what will it do to their turn times and to the cost for the borrower? Using a settlement agent, like any other outside party keeps two things from happening, generally speaking:  costs stay competitive, and speed is not compromised. In a low-margin environment where housing inventory is low for bankers and buyers alike, the volume is the name of the game. Very few are able to close 10 purchases a month as it is, even though they have the contracts to do it. If lenders have to hire more staff just to handle this form, that will add extra cost to them, hence passed onto Mr. and Mrs borrower.

What will this do to volume for the next few months?

Delays In The Mortgage Process

A saving grace is TILA has said there is a high likelihood they will delay any punitive measures until the end of the year. This is speculation on my part. If a delay in punishment does occur, this will allow lenders on all fronts to adapt and make their mistakes early and often, so as to ensure a smoother process down the road. Many real estate associations are already telling their members to add 15 days to the estimated closing date. What we hope does not happen is that more lenders either exit the business and or consolidate, as costs of compliance continue to go up as lower-margin products like Fannie and Freddie(non-FHA) are the bulk of the volume right now. Banks are not making money like they used to, so either are the originators. The team at CLN Mortgage is available 7 days a week if you have any questions.

More to come as I get the info, good luck in June!

Peter has 7+ years of experience in residential lending. He is a licensed Realtor in the Chicagoland area.