Ch. 42 - Loan Estimate and Closing Disclosure

Loan Estimate Form

For closed-end credit transactions secured by real property (other than reverse mortgages), the creditor is required to provide the consumer with good-faith estimates of credit costs and transaction terms on the Loan Estimate form. This form integrates and replaces the RESPA GFE and the initial TIL for these transactions. The creditor is generally required to provide the Loan Estimate within three-business days of the receipt of the consumer's loan application. The Loan Estimate must contain a good faith estimate of credit costs and transaction terms. The Loan Estimate must be in writing and contain the information prescribed by the TRID rule. Delivery must satisfy the timing and method of delivery requirements. Creditors may only use revised or corrected Loan Estimates when specific requirements are met. In certain situations, mortgage brokers may provide a Loan Estimate.

Closing Disclosure Sample

As with the Loan Estimate, it might help in understanding the charges if you can look at a sample Closing Disclosure. Click on the link to the Closing Disclosure example and print off a copy to look over as we continue our discussion. Closing Disclosure The Closing Disclosure is a five-page document. Note: Depending on the type of loan the borrower is receiving, pages 1, 4, and 5 of the disclosure could look different. Pages 2 and 3 will always look the same, regardless of the loan type. This particular sample is a statement of the final loan terms and closing costs for a 30-year fixed rate loan. Let's look at the information for these borrowers and this loan. Closing Disclosure - Page 1 At the top of the first page of the form are three sections: Closing information - Includes date issued, closing date, disbursement date, settlement agent, file number, property address, and sale price Transaction information - Includes names and addresses for both the borrowers and sellers and the lender's name Loan information - Includes the loan term, purpose of the loan, product type, loan type and loan ID number

Closing Disclosure - Page 3

Calculating Cash to Close Closing costs are only part of the cash a borrower needs to bring to closing. The top of page 3 shows how the final costs of the loan compare to the Loan Estimate the lender originally provided to the borrower and then calculates the amount of cash the borrower will need at closing. This calculation includes such items as costs paid before closing, down payment, deposits, seller credits, adjustments, and other credits. Summaries of Transactions This section is divided into two columns. The left column summarizes the borrower's transaction and includes: Due from the borrower at closing - This includes the sale price of the property and any adjustments for items paid by the seller in advance. Paid already by or on behalf of borrower at closing - This includes deposit, loan amount, loan assumptions, seller credits, other credits, and adjustments for items unpaid by the seller. The calculation at the bottom of the left column subtracts the totals already paid by the borrower from the total due from the borrower and results in the Cash to Close due from the borrower at closing. This total is the same figure that you see on the bottom of page 1 under the heading "Costs at Closing - Cash to Close."

Loan Estimate Sample

It might help in understanding the form by looking at a sample Loan Estimate. Click on the link to the Loan Estimate example and print off a copy to look over as we continue our discussion. Loan Estimate The Loan Estimate is a three-page document. Note: Depending on the type of loan the borrower is receiving, pages 2 and 3 of the disclosure could look different. Page 1 will be essentially the same, regardless of the loan type. This particular sample is a statement of the estimated costs for a 30-year fixed rate loan. Let's look at the information for these borrowers and this loan. Loan Estimate - Page 1 The top of the first page has the identifying information: Date issued Applicants Property address Sale price of the property Loan term Purpose Product Loan type Loan ID # Rate lock Loan Terms This section of page 1 gives the exact figures for the loan amount, interest rate, and monthly principal and interest payment, and indicates with a "yes" or "no" whether any of those amounts can increase after closing. It also indicates whether or not there is a prepayment penalty or balloon payment with the loan, and if so, gives the specifics that apply to that feature. Projected Payments This section of page 1 shows the actual payments the borrower will make for principal & interest and mortgage insurance, an estimated amount for the escrow payment, and the total estimated monthly mortgage payment. These calculations are given for years 1-7 and then for years 8-30 of the loan term. This section also gives an estimated monthly amount for taxes, insurance, and assessments and specifies whether or not the money for these payments will be in escrow. The last section of page 1 shows the borrowers' estimated closing costs and the estimate of the total amount of cash the buyers need to bring to closing.

Closing Disclosure

For loans that require a Loan Estimate and that proceed to closing, creditors must provide a final disclosure reflecting the actual terms of the transaction called the Closing Disclosure. The form integrates and replaces the HUD-1 and the final TIL disclosure for these transactions. The creditor is generally required to ensure that the consumer receives the Closing Disclosure no later than three business days before consummation of the loan. The Closing Disclosure generally must contain the actual terms and costs of the transaction. The Closing Disclosure must be in writing and contain the information prescribed in the TRID Rule. If the actual terms or costs of the transaction change prior to consummation, the creditor must provide a corrected disclosure that contains the actual terms of the transaction and complies with the other requirements of the TRID Rule. If the creditor provides a corrected disclosure, it may also be required to provide the consumer with an additional three-business-day waiting period prior to consummation.

Closing Disclosure - Page 1

Loan Terms This section of page 1 gives the exact figures for the loan amount, interest rate, and monthly principal and interest payment, and indicates with a "yes" or "no" whether any of those amounts can increase after closing. It also indicates whether or not there is a prepayment penalty or balloon payment with the loan, and if so, gives the specifics that apply to that feature. Projected Payments This section of page 1 shows the actual payments the borrower will make for principal & interest and mortgage insurance, an estimated amount for the escrow payment, and the total estimated monthly mortgage payment. These calculations are given for years 1-7 and then for years 8-30 of the loan term. This section also gives an estimated monthly amount for taxes, insurance, and assessments and specifies whether or not the money for these payments will be in escrow. The last section of page 1 shows the borrowers' total costs as closing costs (which are detailed on page 2) and the total amount the buyers need to bring to closing (which includes the closing costs and other amounts that are detailed on page 3).

Closing Disclosure - Page 2 (cont)

Other Costs The next section deals with other costs: Taxes and other government fees - Items such as recording fees and transfer taxes Prepaids - These are items paid for in advance, such as homeowner's insurance and property taxes. Initial escrow payment at closing - An escrow account is an account where money is held for certain payments until they are paid out - typically for insurance and taxes. The lender gives the borrower a statement that tells how much money it requires the borrower to put into the account each month. Other costs not covered elsewhere on the disclosure - Items such as HOA fees, home warranty fees, home inspection fees, and real estate commission The total of the costs of E, F, G, and H above Section J gives the total closing costs to the borrower (D + I from above).This total will be moved to the bottom of page 1 under the heading "Costs at Closing - Closing Costs."

Chapter Summary Contd

Page 2 Column 1 - Description of the costs. Column 2 - Costs paid by the borrower. Column 3 - Costs paid by the seller. Column 4 - Costs paid by others. Page 3 Calculating Cash to Close Summaries of Transactions:Due from the borrower at closing.Paid already by or on behalf of borrower at closing.Due to seller at closing.Due from seller at closing. Page 4 Assumption Demand feature Late payment Negative amortization Partial payments Security interest Escrow account Page 5 Loan Calculations Other Disclosures Contact Information Confirm Receipt Click here if you would like to open this summary as a pdf, which you can then print or save to your device: Chapter 42 Summary

Loan Estimate - Page 2

Page 2 of the disclosure gives the details of the closing costs. It has two columns of information. Loan Costs The first section deals in column 1 with the loan costs: Origination charges - Items such as points, application fee, and underwriting fee Services the borrower did not shop for - These are items the lender requires for the loan, such as appraisals and credit reports. Services the borrower did shop for - These are items the borrower can get on his own, such as pest inspections, survey fees, and title insurance. The total of the costs of A, B, and C above Other Costs The next section at the top of column 2 deals with other costs: Taxes and other government fees - Items such as recording fees and transfer taxes Prepaids - These are items paid for in advance, such as homeowner's insurance and property taxes. Initial escrow payment at closing - An escrow account is an account where money is held for certain payments until they are paid out - typically for insurance and taxes. The lender gives the borrower a statement that tells how much money it requires the borrower to put into the account each month. Other costs not covered elsewhere on the disclosure - Items such as HOA fees, home warranty fees, home inspection fees, and real estate commission The total of the costs of E, F, G, and H above Section J gives the total closing costs to the borrower (D + I from above).This total is the same as what appears at the bottom of page 1 under the heading "Estimated Closing Costs." Calculating Cash to Close Closing costs are only part of the cash a borrower needs to bring to closing. The third section on the second half of column 2 deals with calculating the costs to close. This calculation includes the total costs from section J above, closing costs paid from the loan account, down payment, deposits, funds for borr

Closing Disclosure - Page 2

Page 2 of the disclosure gives the details of the closing costs. The page is divided into four columns: Column 1 - Description of the costs Column 2 - Costs paid by the borrower - designated as being paid either "at closing" or "before closing" Column 3 - Costs paid by the seller - designated as being paid either "at closing" or "before closing" Column 4 - Costs paid by others (As you can see in this example, the appraisal fee was paid by someone other than the borrower or the seller.) Loan Costs The first section deals with the loan costs: Origination charges - Items such as points, application fee, and underwriting fee Services the borrower did not shop for - These are items the lender requires for the loan, such as appraisals and credit reports. Services the borrower did shop for - These are items the borrower can get on his own, such as pest inspections, survey fees, and title insurance. The total of the costs of A, B, and C above

Loan Estimate - Page 3

Page 3 has additional information about the loan. At the top of the page is information about the lender, including the name of the loan officer with his or her contact information. The remainder of the page is divided into three sections: Comparisons - This section has measures the borrower can use to compare the loan with other loan products. It shows: Total of principal, interest, mortgage insurance, and loan costs the borrower will have paid and the principal that will have been paid off in 5 years Annual percentage rate (APR) Total interest percentage (TIP) Other Considerations Appraisal - Informs the borrower that the lender may order an appraisal and charge the borrower Assumption - Indicates whether or not the lender will allow a loan assumption on a future sale or transfer Homeowner's insurance - Indicates that the lender requires property insurance that the borrower may obtain through a company of their choice that the lender finds acceptable Late payment - States what late fee the lender will charge Refinance - Indicates that refinancing depends on future considerations and that borrower may not be able to refinance Servicing - Indicates whether the lender intends to service the loan or transfer servicing to another entity Confirm Receipt This section has a place for the borrowers to sign. However, signing means only that the borrower has received a copy of the form. It does not mean that the borrower has accepted the loan.

Closing Disclosure - Page 4

Page 4 details the Loan Disclosures. It covers: Assumption - Indicates whether or not the lender will allow a loan assumption on a future sale or transfer Demand feature - Indicates whether or not the loan has a demand feature, which would allow the lender to require early repayment Late payment - States what late fee the lender will charge Negative amortization - Indicates whether or not the loan has a negative amortization feature, which could result in the loan amount becoming larger than the original loan amount, resulting in a decrease of the equity the borrower has in the property Partial payments - Indicates whether or not the lender would accept partial payments on the loan Security interest - Lists the address of the property securing the loan Escrow account - Breaks down what is and what is not included in the escrow account

Closing Disclosure - Page 5

Page 5 includes the following sections: Loan Calculations - Details the total amount of all payments on the loan, the dollar amount of the finance charges over the life of the loan, the amount financed, the annual percentage rate (APR), and the total interest percentage (TIP) Other Disclosures - States other important information for the borrower to know including whether or not the borrower would have any protection from liability for the unpaid balance in the event of a foreclosure Contact Information - Gives firm names, addresses, license numbers, contact names, email addresses, and phone numbers for persons involved in the transaction. Confirm Receipt - A place for the borrowers to sign confirming receipt of the Closing Disclosure document. Signing the document does not indicate acceptance of the loan.

Closing Disclosure Delivery Requirements

Required delivery time frame for the Closing Disclosure is based on the method of delivery. It must be delivered at least three days prior to closing. Having their final loan terms and costs available three days prior to closing enables consumers to review their final loan costs and terms and ask questions prior to coming to the closing table. It provides time for the consumer to get answers to any questions and possibly negotiate any changes that occurred. The creditor is generally responsible for insuring that the Closing Disclosure is delivered to the buyer no later than three business days before consummation. The creditor may contract with a settlement agent to provide the Closing Disclosure on behalf of the creditor. Important definitions to consider for complying with delivery of the Closing Disclosure include: Business day means all calendar days except Sundays and legal public holidays specified in 5 U.S.C. 6103, or the observed legal holiday. For example, if Fourth of July falls on Sunday, the observed holiday is Monday. Consummation is defined under Regulation Z as the time that a consumer becomes contractually obligated on a credit transaction The settlement agent must provide the seller with the Closing Disclosure, and that may be done at consummation.

Loan Estimate and Closing Disclosure (cont.)

The Loan Estimate and Closing Disclosure forms provide a means for borrowers to comparison shop more effectively for competing loan offers. The new forms clearly break down the costs of the loan, such as the interest rate, mortgage insurance costs, and closing costs. By comparing forms from different potential lenders, new homebuyers and consumers who are refinancing their existing mortgage can make better, more informed decisions about the loan offer that is best for them. The consumer will also receive information regarding which closing services are required and the services for which they can shop around. The Consumer Financial Protection Bureau (CFPB) forms state in bold the monthly principal and interest payments. Forms provided for adjustable-rate loans must state the projected minimum and maximum payments over the life of the loan. In short, the forms are not only easier for the consumer to understand, but they are easier for industry professionals to explain to the consumer.

Loan Estimate Delivery Requirements

The Loan Estimate must be delivered within three business days of loan application. Signature of the applicant(s) is permitted but not required. If a mortgage broker receives a consumer's application, either the creditor or the mortgage broker may provide a consumer with the Loan Estimate. If the Loan Estimate is not provided to the consumer in person, the consumer is considered to have received the Loan Estimate three business days after it is delivered or placed in the mail. Note: For purposes of this rule, a loan application exists once consumer has submitted 6 items (3 pertaining to customer and 3 pertaining to property) to the lender. Those items are: Name Borrower's Income Borrower's Social Security number Property address Estimated value of property Amount of mortgage loan sought by the consumer. Also, a business day is a day on which the creditor's offices are open to the public for carrying out substantially all of its business functions. This definition of "business day" applies only to the Loan Estimate or revision of the Loan Estimate. It does not apply to the Closing Disclosure.

Chapter Summary

This concludes Chapter 42. Below is a brief summary which you can review before taking your quiz. For closed-end credit transactions secured by real property, the creditor is required to provide the consumer with good-faith estimates of credit costs and transaction terms on the Loan Estimate form. The Loan Estimate must be delivered within three business days of loan application Page 1 of the Loan Estimate details: Identifying information Loan Terms Projected Payments Page 2: Loan Costs Other Costs Calculating Cash to Close Page 3: Comparisons Other Considerations Confirm Receipt For loans that require a Loan Estimate and that proceed to closing, creditors must provide a final disclosure reflecting the actual terms of the transaction called the Closing Disclosure. The creditor is generally required to ensure that the consumer receives the Closing Disclosure no later than three business days before consummation of the loan. The Closing Disclosure form must be delivered to the parties to the transaction at least three days prior to the closing date. Page 1 Closing information Transaction information Loan information Loan Terms Projected Payments