What is the difference between a penguin, a zebra, a skunk and the new closing disclosure?
All are black-and-white except the closing disclosure which is somewhat gray at this time. So let’s chew on this a while.
The new closing disclosure effective August 1, 2015 is comprised of five pages. Whereas the current RESPA form is three pages and its predecessor two pages, and some of us remember just a buyer and seller’s statement of one page. Let’s begin chewing on the new closing disclosure.
The new form replaces the TILA and HUD – 1. It will be required for one closing disclosure for each loan and charge descriptions used on the loan. Estimates must be substantially similar to descriptions used on the closing disclosure so a consumer may easily identify a change in costs, or terms, by comparison of the two forms. That is confusing enough, but we will try to break it down further.
Page 1 of the closing disclosure identifies the loan terms, the loan amount, the interest rate, monthly principal and interest, and any prepayment penalty or balloon payment. This page also provides the projected payments over the life of the loan, the total estimated closing costs, and cash to close as is disclosed in future pages.
Page 2 you may recognize as being similar to the HUD-1 settlement statement which you have been using. This page is referred to as “Closing Cost Details” and provides the origination fee, services the borrower did not get to shop for, plus services they did get to shop for. Other costs include proration of taxes, recording fees, prepaid items, and initial escrow payments to be collected at closing thus providing your total closing costs.
Page 3 of the new closing disclosure breaks down even further the closing costs of both the buyer and the seller. This page is a comparison of the charges disclosed on the loan estimate. This page consists of payments and credits shown on previous pages that summarizes the transaction for the buyer and the seller.
Page 4 is the information about this loan where disclosures are made regarding assumption, demand features, late payments, negative amortization if any, and what is done with partial payments and security interest. It also breaks down your escrow account as to how much will be saved in escrow for your estimated property taxes and insurance, thus combining those to show the monthly escrow payment which will be made at the time of your loan. However, if you will not have an escrow account with your lender, or if the lender does not offer you one, those boxes must be checked. If there is no escrow, an estimated amount which you will pay each year will be disclosed.
And finally, you’re almost at the end. If you have not lost your voice by now, you will explain the total amount of the payments, finance charge, amount financed, annual percentage rate, and total interest percentage to be paid. Also on page 5 names will be given for the lender, mortgage broker, the real estate broker for the buyer and the seller, and the settlement agent along with their license number, email addresses and phone numbers. Getting the truth for those may be the hardest part!
Unfortunately this is not a portion of CFPB that can be addressed in my usual, hopefully humorous manner, but this must be adhered to by all companies as the August 1 deadline is rapidly approaching. Copies of the disclosures are attached here. Please contact your First National Title agency representative or underwriter for any questions you may have.
Until our next fun chew, Over and Out.