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The Dodd-Frank Act. A Glossary of Acronyms
By Michele Sloan
DFA – Dodd-Frank Act. The Dodd-Frank Act is also known as the Wall Street Reform and Consumer Protection Act it is a law that places major regulations on the financial industry and is geared towards protecting consumers.
CFPB – Consumer Financial Protection Bureau. The CFPB was created by the Dodd-Frank Act it is an independent agency of the United States government. Its role is to offer consumer protections in matters relating to the financial sector. Website: consumerfinance.gov
ATR – Ability to Repay Act. The Ability to Repay Act went into effect in 2014. In order for a creditor to receive certain safe-harbor protections, it must determine the consumer/borrower can qualify for the home loan. Expect the loan process to take a bit longer due to more comprehensive paperwork.
QM – Qualified Mortgage. A Qualified Mortgage is one in which the creditor has made a good faith determination the consumer has the ability to repay the loan being offered. QM loans cannot contain risky features such a negative amortization, interest-only periods and loan terms longer than 30 years.
HPML – High Priced Mortgage Loan. An HPML is a loan with an Annual Percentage Rate (APR) that exceeds the Average Prime Offer Rate (APOR). HPML loans generally require additional disclosures and consumer protections such as two appraisals and the requirement of credit counseling.
HUD – U.S. Housing and Urban Development Department. HUD was established in the 1960’s to develop policies and programs to address housing needs of Americans and offer consumer protections.
RESPA – Real Estate Settlement Procedures Act. Also known as Regulation X and originally under HUD, RESPA is now regulated and enforced by the CFPB. The purpose of RESPA is two-fold, to provide consumers with better disclosure of settlement costs and to eliminate kickbacks or referral fees that unnecessarily increase settlement costs.
SSP – Settlement Service Provider. Services that occur at or prior to the closing, in which a federally related loan is involved, is considered to be a settlement service provider under RESPA (and enforced by the CFPB). Examples include: Real estate brokers, mortgage banks and brokers, home insurance providers, survey companies, home inspectors, tax service providers, property appraisers, home warranty companies, etc. The list is endless!
TILA – Truth-in-Lending Act. Also known as Regulation Z, TILA requires standard disclosures in regards to consumer credit.
TRID – TILA+RESPA Integrated Disclosure. TRID, referred to as Know Before You Owe, integrates the disclosures required under Regulation X and Z and becomes effective on all loan applications taken after October 3rd, 2015.
HMDA – Home Mortgage Disclosure Act. HMDA also known as Regulation C requires creditors to report certain information in regards to the loan. This data is used to identify discrimination practices, is used by public officials to market and attract businesses and also determines counties where consumers and creditors have difficulty adhering to QM standards.
LE – The Loan Estimate. The LE replaces the Good Faith Estimate (GFE) and is required by the creditor to be in the consumer’s hands within 3 business days of the loan application. The LE must be accompanied by the CFPB Home Loan Toolkit and a list of 10 local credit counseling agencies. Once provided to the consumer the LE is ‘good’ for 10 calendar days and allows for the consumer to ‘shop’ and obtain ‘credit counseling’. A change in the consumers ‘circumstance’ may result in new disclosure requirements.
NIP – Notice for Intent to Proceed. Must be signed by the consumer before the creditor (lender) can formally begin the loan process and collect appraisal fees.
CD – The Closing Disclosure. The closing disclosure replaces the HUD-1 also called the Closing Statement on federally related mortgages effective August, 2015. The CD must be provided to the consumer no later than 3 business days prior to closing. The goal of the LE and CD is to improve consumer understanding of the costs and terms of the mortgage loan.
Consummation. The ‘closing’ of the property is a two-part process. Consummation occurs when the consumer becomes contractually obligated to the creditor. Settlement occurs when the buyer becomes contractually obligated to the seller. This two-part process is assumed to be the ‘closing’.
ECOA – The Equal Credit Opportunity Act. Also known as regulation B, ECOA requires the consumer receive all copies of property valuations as soon as they become available but no later than 3 business days prior to closing.
USPAP – Uniform Standards of Professional Appraisal Practice are the quality controls in place in regards to the estimate of value of real property.
SAFE Act – The Secure and Fair Enforcement for Mortgage Licensing Act. The SAFE Act transferred to the CFPB from HUD is designed to protect consumers from fraud by establishing minimum standards for the licensing and registration of MLO’s (Mortgage Loan Originators).
Settlement Agent = Title Company
Lender = Creditor
Buyer = Consumer
Seller = Seller (no change)
What is a business day?
Loan Estimate – A day on which the creditor’s office is open to the public for carrying out substantially all of its business functions. Saturday may or may not be a business day.
Closing Disclosure – All calendar days except Sundays and the legal public holidays specified by federal law; New Year’s Day, The birthday of Martin Luther King Jr., Washington’s Birthday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans Day, Thanksgiving Day, and Christmas Day.
ITEMS TO CONSIDER:
? Split closings – two different title companies processing the file – each needs to have certain information and each needs to send information to the creditor.
? Warn your buyers that this is the land of change and to expect more paperwork, more scrutiny and the importance of immediately responding to all requests from the creditor/settlement service agent.
? Appraisals – the reports required the appraiser create are more comprehensive, detailed, longer and require a great amount of time to complete. Order that appraisal ASAP.
? Home owners insurance – consumer needs to begin the search for homeowners insurance at the beginning of the process and provide the information to the creditor.
? Domino transactions – one hiccup and the whole chain can be thrown off.
? Pre-signing a transaction may not be possible.
? Avoid closing on Friday or the day before a major holiday.
? Privacy laws may disallow the creditor from providing the closing disclosure to the licensee – plan on obtaining a copy of the closing disclosure form directly from the consumer.
? An in-town buyer and seller makes for a smoother process.
? $5,000 for violating a CFPB rule
? $25,000 for violating a consumer financial protection law
? $1,000,000 for a knowing violation of a consumer financial protection law
Do’s and Don’ts of the Agent:
? Do submit the contract within one business day of acceptance to the settlement agent and creditor (if known).
? Do provide the consumer with a signed contract so it can be provided to the creditor at loan application.
? Do encourage the seller to communicate loan/lien information to the settlement agent immediately at contract acceptance. (Consider using the Seller Closing Information Form created by a group of 25 title companies/settlement agents as an additional aid to help with the transition. Attached.)
? Do keep settlement agent/creditor informed of all changes/terms to the contract.
? Don’t expect the settlement agent/creditor to back-date/falsify or violate privacy laws; at a potential million dollar fine – It’s not going to happen.
? Don’t look for ‘holes’ in the system or try to short-cut, see the above in regards to fines.
? Do provide Home Owner’s Association information (if known) to the settlement agent. Many times it is a struggle to get this information and can hold up your closing.
? Do immediately provide your state issued brokerage license number and your state issued license number to the creditor.
? Do be patient with the settlement agent/creditor each have new details, new time-frames, new processes and as of October 3rd had to flip a switch to turn on new systems, new software programs, and new forms – while all is expected to go smoothly – stuff happens!
? Ask the settlement agent/creditor about steps that you as the licensee can implement to ensure a smooth process.
? Do set reasonable expectations with buyers and sellers – in general 30-45 days for loan commitment and 45-60 days for closing will be the new normal.
? Do stay in your lane-you are a licensee not a creditor/settlement agent/surveyor/building inspector etc. always refer the customer/client to the appropriate professional.
? Do work with only cash buyers to avoid these new processes. ?
? Do give your favorite settlement provider/creditor a hug – they need it.
? Do spread the word. There are many real estate licensees that are unfamiliar with the new regulation, spread your knowledge to those in need of assistance.
? Remember the Code of Ethics Preamble – competency, fairness and high integrity.
Do’s and Don’ts of the Consumer:
? Do make loan application immediately.
? Do, once a creditor has been decided on, remember to sign the Notice for Intent to Proceed.
? Do pay for the appraisal immediately upon signing the Notice for Intent to Proceed.
? Do respond to all creditor/title requests immediately.
? Do provide the creditor with homeowner’s insurance information immediately.
? Do keep settlement agent/creditor informed of all changes/terms to the contract.
? Do take off work the day of closing and close as early in the day as possible.
? Don’t close on a Friday, the end of the month or the day before a holiday- for a smoother closing.
? Don’t quit your job.
? Don’t take out additional credit.
? Don’t co-sign for a loan.
? Don’t go purchase new furniture, appliances etc.
? Don’t have any late pays or bounce any checks.
? Don’t change your bank account.
Time frames (all required – unless stated otherwise):
? 1 business days (preferred), the agent to deliver accepted contract and seller loan information/lien information to the settlement agent so a property title search and payoff/lien information obtained.
? 1-3 business days (preferred), the consumer to make loan application with the creditor.
? 3 business days for the creditor to deliver the LE to the consumer (the LE must contain a list of 10 local credit counselors and the CFPB produced Home Loan Tool Kit).
? 10 days the consumer has the option to shop other creditors and compare rates/terms etc. and obtain credit counseling.
? 10 days from receipt of LE for the consumer to sign the Notice for the Intent to Proceed.
? 30 days prior to closing the CFPB expects the settlement agent to deliver a preliminary title commitment to the creditor.
? 14 business days (preferred) prior to closing the settlement agent needs to have all final figures from the real estate licensee.
? 10-14 business days (preferred) the title company needs to send all final figures to the creditor.
? 3 business days prior to closing the consumer must receive the appraisal and all valuations.
? 3 business days prior to closing the consumer must receive the closing disclosure supplied by the creditor.
? 3 business days – the federal mail box rule – if the creditor sends the closing disclosure by mail or electronically, 3 business days must pass before it can be assumed the consumer has received. Therefore, 6 business days are needed.
? 3 business days – a new 3 day waiting period must be added if a change from the original closing disclosure includes; a change in the APR, a loan product change, or the addition of a pre-payment penalty.
? 30-60 days after loan consummation the time-frame the creditor has to cure any settlement charges that exceeded the allowable tolerance levels provided to the consumer on the Loan Estimate.
Note: 3-day periods are measured by days, not hours. For instance disclosures must be delivered 3-days before closing (not 72 hours prior to closing).
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