A real estate revolution is coming: it’s the end of the HUD-1 as we know it (and I feel fine)
One of the definitions of a “revolution” is that it is a sudden, complete, or marked change in something. Well, if you have ever bought, sold, or refinanced real estate, the world as you know it will change forever on August 1, 2015 when the TILA/RESPA Integration Rules take effect. The main casualties of this coming revolution are the HUD-1 Settlement Statement, which is forever gone, and the Truth in Lending Disclosure, which is being combined with the Good Faith Estimate of Closing Costs.
These changes have been mandated by the new Sheriff in Real Estate City, the Consumer Financial Protection Bureau (“CFPB”), an Agency created by the famous (infamous?) Dodd-Frank Act. As you may recall, the Dodd-Frank Act was passed in response to the near financial meltdown that occurred in 2008-with regard to mortgage-based securities. All realtors, consumers, mortgage professionals, and attorneys will now need to familiarize themselves with the new regulations which rule real estate financing, and purchase transactions.
These new TIL/RESPA disclosures will apply to all mortgage applications received on, or after August 1, 2015. If the application was received on July 31, 2015, the old rules will still apply. The CFPB has defined the submission of your name, address, income, social security number, property address, property value estimate, and mortgage loan amount sought as an “application.” Once this application has been made, the lender has three (3) business days (i.e., days open for business; no Saturdays) to deliver to the consumer a Loan Estimate. This Loan Estimate is deemed received three (3) business days after mailing. There is some uncertainty as to whether this will hamper the frequently utilized “pre-qualification” letter that lenders used to give out like candy. However, as long the property address of the property you are purchasing has not been given, it does not meet all of the requirements of an “application.”
This Loan Estimate must identify the settlement services for which the consumer may shop (most obvious example: title insurance), provide a written list of service providers with contact information, and a statement that the consumer “may choose another provider.” For example, you do not have to use the title insurance company that your realtor suggests (most likely because they are a partner in the title agency).
Let’s move forward in the closing process. The loan estimate is given, the consumer accepts the offer, and we now are moving towards the closing, or the “consummation” of the real estate financing transaction. In other words, the day you actually refinance your mortgage, or buy your house. This is where the changes in the regulations are most significant.
First, and foremost, gone forever is the “HUD-1” being replaced by something currently called the “Closing Disclosure.” On the bad side, the size of this document is even larger than the current HUD-1, and no less confusing (perhaps even more so). Currently, your title agent is responsible for the preparation of the HUD-1 statement. Under the new regulations, that will not always be the case. Since the Lender will be responsible for errors in the Closing Disclosure, the larger lenders will be preparing the Closing Disclosure while your title agent provides much of the necessary information to the lender. The consumer (that’s you) must receive the Closing Disclosure no later than three (3) days before the consummation (formerly “closing”). There are no exceptions! If the Closing Disclosure is sent via mail, or email, then the regulations deem it received three (3) business days after it is sent.
Here is an example of how it works. Lender mails out the Closing Disclosure on Monday. It is deemed received on Thursday. Consumer has three business days to review, so the consummation cannot occur before Wednesday of the next week. There are very few exceptions, and the fact that the buyer, or seller needs to close before a certain date (other than the date of a sheriff’s sale on the property to be sold) will not be deemed an emergency.
Attention realtors: this means any, and all bills you have to be paid at consummation must be given to the title company to be given to the lender when the Closing Disclosure is sent to the consumer. If anything changes on the Closing Disclosure, it triggers a completely new three (3) day delivery, and then three (3) day review process. So no more will a realtor be permitted to arrive at settlement, and present a bill for painting, or grass cutting – it will trigger a whole new waiting period as described above. And the transaction will not close for approximately another week.