Feb. 28: A primer on “Total Interest Percentage”; advice on purchase & sale agreements; RESPA-TILA changes: not for the meek

Rob Chrisman

Rob Chrisman began his career in mortgage banking – primarily capital markets – 31 years ago in 1985 with First California Mortgage, assisting in Secondary Marketing until 1988, when he joined Tuttle & Co., a leading mortgage pipeline risk management firm. He was an account manager and partner at Tuttle & Co. until 1996, when he moved to Scotland with his family for 9 months. Read more...

We have 108 business days until the August 1 rollout of the RESPA-TILA changes, and it still seems that there are segments of the real estate and lending population who are unaware. (To be blunt, many LOs are saying that a good portion of Realtors fall into this group, especially those that only close a few deals a year.) With that in mind I took the liberty or reproducing what two lenders/investors have to say on the subject of the TILA-RESPA Integrated Disclosure Rule (aka TRID), the changes involved, and the process. For those that think that the approaching August 1 changes are a “slam dunk.” They ain’t.

 

First up is Plaza Home Mortgage.

 

Plaza will provide you with the information, tools and training you need to understand the new TILA-RESPA Rule in the coming weeks and months. We have established a timeline for communication and training that we will discuss in more detail in a few weeks. To begin, we want to provide a high-level overview of the new rule.

The TILA-RESPA rule consolidates four existing disclosures required under TILA and RESPA for closed-end credit transactions secured by real property into two forms:

  1. A Loan Estimate must be delivered or placed in the mail no later than the third business day after receiving the consumer’s application.
  2. A Closing Disclosure must be received by the consumer at least three business days prior to consummation.

Effective Date: The new Integrated Disclosures must be provided by a creditor or mortgage broker that receives an application from a consumer on or after August 1, 2015. Creditors will need to follow the current disclosure requirements under Regulations X and Z, and use the existing forms for transactions where the application is received prior to August 1, 2015. The Loan Estimate: The Loan Estimate form replaces the Good Faith Estimate and the “early” Truth-in-Lending disclosure. The Loan Estimate form also incorporates new disclosures required by Congress under the Dodd-Frank Act. Creditors are responsible for ensuring that the figures in the Loan Estimate are made in good faith and consistent with the best information available at the time they are disclosed. The Closing Disclosure: The Closing Disclosure form replaces the HUD-1 and the Truth-in-Lending disclosure. The Closing Disclosure generally must contain the actual terms and costs of the transaction. The Closing Disclosure form contains additional new disclosures required by the Dodd-Frank Act and a detailed accounting of the settlement transaction. The creditor must give consumers the Closing Disclosure so that they receive it at least three business days before consummation.

 

Next up is a memo that NYCB (New York Community Bank) sent out titled, “Framework for Integrated Disclosure Compliance – Guidance for NYCB Clients and Settlement Agents”.

 

Overview

As part of the Dodd-Frank Wall Street Reform Act (“Dodd-Frank”), the Consumer Financial Protection Bureau (CFPB) was charged with the task of revising and simplifying the rules regarding mortgage loan disclosures as they apply to mortgage lending under the Real Estate Settlement Procedures Act (RESPA) and the Truth in Lending Act (TILA). The new integrated rule has been placed under TILA, and created new disclosures and associated rules which must be implemented by Creditors for new applications commencing on August 1, 2015 (hereafter referred to as “Integrated Disclosures”). All applications dated prior to August 1, 2015 must use the applicable RESPA and TILA disclosures in effect prior to August 1, 2015.

  • Loan Estimate (LE) Replaces Good Faith Estimate (GFE) The final rule requires the use of the “Loan Estimate” (LE), which will replace the “Good Faith Estimate” or “GFE” and the servicing disclosure statement required under RESPA, the right to receive copy of appraisal disclosure under ECOA, and the “early Truth-in-Lending” or “early TIL” required under TILA. The LE must be issued within three business days of receiving the application.
  • The Integrated Disclosures must be provided by a Creditor that receives an application from a consumer for a closed-end credit transaction secured by real property on or after August 1, 2015.
  • The Integrated Disclosure rules do not apply to the following types of loans:
    • home equity lines of credit,
    • reverse mortgages, or
    • mortgage loans secured by a mobile home or by a dwelling that is not attached to real property
  • If the Creditor is a wholesale lender, it may allow the mortgage broker to issue the LE on its behalf. If the Creditor allows the mortgage broker to issue the LE, the Creditor is bound by the terms of that LE if the consumer expressed his/her intent to proceed with the transaction within ten (10) business days of receiving the LE.
  • Closing Disclosure (CD) Replaces HUD-1/1A The final rule also requires the Creditor to deliver a “Closing Disclosure” (CD) which will replace the “HUD-1/1A Settlement Statement” required under RESPA and the final TIL disclosure required under TILA.

 

NYCB Solutions

To address the complexities of the new disclosure requirements, New York Community Bank and NYCB Mortgage Company, LLC — hereafter collectively referred to as “NYCB” — is developing a technical solution that will be integrated into the existing NYCB systems platform (Gemstone).

  • NYCB’s Gemstone system applications required for Integrated Disclosures will be designed exclusively for table funded transactions.

 

  • NYCB’s Gemstone system applications related to Integrated Disclosures will not be available to correspondent lenders/sellers. A correspondent lender is the creditor and is exclusively responsible for compliance with these rules.
  • Accordingly, NYCB pre-purchase correspondent loan reviews will audit for Integrated Disclosure compliance, and loans determined not to be in compliance will not be purchased by NYCB.

 

Our primary objective is two-fold: 1) to control the accuracy of the Integrated Disclosures by providing a solution that enables our table funding Clients and Settlement Agents to import or enter information from their data system into Gemstone, where it will be combined with other data already verified within Gemstone earlier in the origination process; and, 2) to automate the disclosure drafting and delivery processes to ensure compliance with the regulatory timelines, tolerances, and other applicable considerations.

 

Because the creditor retains ultimate responsibility and liability for the timely delivery of accurate Integrated Disclosures, NYCB will generate and deliver the LE and CD to the applicant and other applicable individuals. To facilitate this process, after an NYCB table funding Client obtains the application information from the consumer as defined by the final rule, and subsequently chooses to select NYCB as the lender/creditor, the table funding Client will be required to provide all required information necessary to generate an LE directly into Gemstone. NYCB will review the accuracy of the information provided and deliver the LE to the primary borrower as required by the regulation.

  • In conjunction with the table funding Client, the Settlement Agent will prepare the CD in Gemstone and NYCB will generate and deliver the CD to the applicant(s) and other applicable individuals.
  • For purchase transactions, the Settlement Agent will be responsible for providing the CD to the Seller and delivering a signed copy to NYCB.
  • Gemstone will also facilitate the generation and delivery of any necessary revised LE or CD documents to the consumers.

 

For consumers who consent to doing business by electronic means, NYCB’s eTechnology will be available to streamline the delivery of all LEs and CDs that are generated throughout the loan process.

 

Coming Soon NYCB will continue to provide more information regarding our Integrated Disclosure plan throughout 2015. NYCB training presentations will be provided to Clients and Settlement Agents beginning in March, 2015 and continuing until the August 1, 2015 implementation date.

 

Thank you Plaza and NYCB!

 

 

Switching gear but still staying in compliance and legal issues, earlier this month the commentary reproduced a note that said, “Rob, we’ve noticed some rather unfavorable new language in Purchase and Sale Agreements from investors that are selling into the securitization markets.  We’ve been told the language results from the SEC’s new rules known as Regulation AB. The language essentially puts sellers on the hook not only for breaches of reps and warranties, but for ‘Alleged’ breaches as well. Reference to the issue is cited on page 363 of the SEC document that spells out the SEC’s Final Rule.”

 

Bilzin Sumberg Baena Price & Axelrod LLP attorney Phil Stein observed that, “I have dealt with issues involving ‘non-negotiable’ provisions in new purchase and sale agreements. Everything is negotiable, and agreeing to a provision that makes you liable simply because a third party alleges something is asking for trouble. Regulation AB has nothing at all to do with representations and warranties by the entity that sells a loan to a party that ultimately securitizes that loan.  It has to do with the documents in which representations are made about the securitization. I would love to assist companies that have investors citing this regulation to them as supposed justification for imposing harsh requirements on anyone who wants to sell loans to that investor.”

 

A reader asked about finding an explanation of “Total Interest Percentage”, and it just so happened that Alice Alvey, SVP of Learning and Consulting at Indecomm, did a piece on this. “Explaining Total Interest Percentage (TIP): Originators and closers will be faced with a new acronym on the Loan Estimate(LE) and Closing Disclosure (CD). They will need to explain the Total Interest Percentage or TIP to the borrower. The TIP is the total amount of interest the borrower will pay over the loan term as a percentage of the loan amount. The TIP is shown along with the APR, Finance Charge, Amount Financed and Total Payments. The 4 familiar numbers will be calculated in the same way as they have been for years. The TIP examples shown on the LE and CD at the CFPB website show the total interest, as a percentage, will be approximately 69% of the loan amount. The catch is that CFPB examples use a 3.875% interest rate! If interest rates move to 5.5% the TIP jumps over 100%!”
Alice’s explanation went on. “’How do you think borrowers will be reacting to this?’ The TILA information is no longer on a separate form that is easy to avoid in the application package. Originators will need to explain every number, every time. Be prepared to know how to calculate the TIP amount. The numbers are not clear on the form when PMI or MIP is included in the Total Payments box. If the borrower actually asks where the TIP comes from, you can do quick math in reverse. Simply take the loan amount and multiply it by the TIP; this converts the total interest percentage into the dollars they will pay over the life of the loan. (i.e. $162,000 loan amount x 69.8% TIP = $113,238 of interest paid over the life of the loan. The interest rate in this example is a fixed 3.875%) For ARM loans this cost will be based on the fully indexed rate and of course the borrower may end up paying much more depending upon actual interest rates. Perhaps the best tip is to avoid the acronym in the first place and refer to it as the total interest expense over the life of the loan.” Thank you Alice!

 

The value of a # 2 pencil (Rated PG or R – I couldn’t decide which)

Little Susie was not the best student in Catholic School. Usually she slept through the class.

One day her teacher, a Nun, called on her while she was sleeping.

“Tell me Susie, who created the universe?”

When Susie didn’t stir, her friend little Johnny who was sitting behind her, took his pencil and jabbed her in the rear.

“God Almighty!” shouted Susie.

The Nun said, “Very good” and continued teaching her class.

A little later the Nun asked Susie, “Who is our Lord and Savior?”

But Susie didn’t stir from her slumber. Once again, Johnny came to her rescue and stuck her in the rump.

“Jesus Christ!!!” shouted Susie.

And the Nun once again said, “Very good”, and Susie fell back asleep.

The Nun asked her a third question. “What did Eve say to Adam after she had her twenty-third child?”

Again, Johnny came to the rescue. This time Susie jumped up and shouted, “If you stick that damn thing in me one more time, I’ll break it in half!”

The nun fainted.

 

 

Rob

 

(Copyright 2015 Chrisman LLC. All rights reserved. Occasional paid job listings do appear. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of Rob Chrisman.)