Among the many issues that the 2015 AAR Risk Management Committee will address are changes to the closing process that the Consumer Financial Protection Bureau will implement on October 3, 2015. Under the guidance of 2015 Risk Management Committee Chair, Martha Appel, AAR will join with the National Association of REALTORS® and title companies across the state to educate REALTORS® on the new forms and closing procedures that will soon take effect.
As part of its continuing overhaul of the home mortgage market, the Consumer Financial Protection Bureau is eliminating the HUD-1 Settlement Statement and replacing it with a new Closing Disclosure. The new form, which will take effect on October 3, 2015, is designed to provide disclosures that will help consumers better understand all of the costs associated with the transaction. This document will be provided to consumers three business days before they close on their mortgage loan, and the bureau has published a version of this new form completed in the proper manner. The mock-up, which can be viewed at http://files.consumerfinance.gov/f/201311_cfpb_kbyo_closing-disclosure.pdf, is particularly helpful in understanding what the Closing Disclosure will look like upon completion.
Additionally on October 3, 2015, the current Good Faith Estimate and the current Truth in Lending Disclosure will be replaced by a new Loan Estimate. This form, which will be provided to consumers within three days after they submit a mortgage loan application, is designed to provide disclosures that will help borrowers understand the key features, costs and risks of the mortgage loan for which they are applying. A completed loan estimate form for a borrower in a purchase transaction can be found at http://files.consumerfinance.gov/f/201311_cfpb_kbyo_loan-estimate.pdf, and a completed loan estimate form for a borrower in a refinance transaction can be found at http://files.consumerfinance.gov/f/201311_cfpb_kbyo_loan-estimatefor-refinancing.pdf.
For a comparison of the existing forms and the forms that will take effect on October 3, 2015, go to http://www.consumerfinance.gov/knowbeforeyouowe/compare/.
An additional resource REALTORS® may wish to take advantage of are compliance guides that are intermittently published by the Consumer Financial Protection Bureau. While some of the guides are more helpful and concise than others, one that is easy to understand is titled Final Rule on Simplified and Improved Mortgage Disclosures, and can be found at http://files.consumerfinance.gov/f/201311_cfpb_tila-respa_detailed-summary.pdf. This guide, which was issued on November 20, 2013, is only seven pages in length and provides a broad overview of the upcoming changes. A more detailed guide is the bureau’s TILA-RESPA Integrated Disclosure Rule Small Entity Compliance Guide found at http://files.consumerfinance.gov/f/201409_cfpb_tila-respa-integrated-disclosure-rule_compliance-guide.pdf. Although a more recent publication, having come out in September 2014, it is 91 pages in length and addresses relatively detailed and complex topics that may not prove applicable to a majority of REALTORS®.
Throughout 2015, AAR, by way of the Risk Management Committee, will continue to provide members with valuable information on these upcoming changes. The Risk Management Committee will additionally review and evaluate AAR’s current forms to ensure that they align with the Consumer Financial Protection Bureau’s new closing procedures. AAR members should therefore keep an eye out for articles, classes, webinars and blog posts designed to keep agents abreast of the changes that we will experience in the coming year.
About the Author: Scott M. Drucker, Esq., a licensed Arizona attorney, is General Counsel for the Arizona Association of REALTORS® serving as the primary legal advisor to the association. This article is of a general nature and reflects only the opinion of the author at the time it was drafted. It is not intended as definitive legal advice, and you should not act upon it without seeking independent legal counsel.