Do You Know The Answers To These Questions?
Don’t be fooled by the fact that it’s a beautiful morning here in Albany New York and Memorial Day is right around the Corner. These are actually compliance omens. It means that time is running out for your credit union to take a serious look at how it plans to comply with the new integrated disclosure requirements that kick in for mortgage applications received on or after August 1. You will be providing a loan Estimate and a Closing Document to your members.
My concern is that, whereas the industry spent months fretting over the QM rules, the sense I get is that the integrated disclosure rules haven’t generated the same angst. To the extent this is because you have used the last year to get ready I apologize and you can go on with your day. To the extent that there are some of you who think this rule is something that your vendor will take care of grab a second cup of coffee-this is admittedly dry reading in the morning-and ask yourself these basic operational questions. The new mortgage disclosures involve operational considerations that will impact your credit union’s bottom line.
Are you ready to make sure that your anxious homebuyers receive their Closing Disclosures at least three days before the loan is consummated?
This is probably the change with which you are most familiar. The days of a member getting the HUD1 at closing are over. With very narrow exceptions a Closing Disclosure must be received at least three business days before consummation. (A business day for purposes of the closing Disclosure requirement is all calendar days except Sundays and legal holidays)
An example provided by the CFPB illustrates just how big a change this is. If your member receives the closing document by overnight mail on a Saturday the earliest you can close is Thursday, assuming there are no holidays in between. This means that you better reach out to your network of attorneys and have a discussion about who is ultimately responsible for preparing the closing disclosure and getting it to the member. You also should practice calming down your homebuyers if new disclosures have to be provided and you can’t allow them to close on Thursday. This is by far the most foolish requirement I’ve seen the CFPB impose on the home buying process but you still have to figure out how you are going to comply.
Do your originators know what an application is? Have you given any thought to what information you are going to ask potential mortgage applicants and in what order? Gone are the days when an application is whatever you say it is. Like it or not anytime a member provides your employees with six magic pieces of information they have provided you with enough information to be given a Loan Estimate These 6 pieces of information are: The consumer’s name; The consumer’s income; The consumer’s social security number to attain a credit report; The property address; An estimate of the value of the property and The mortgage loan amount sought.
There is no wiggle room here: once you get this information a member must be sent an estimate within three business days. (For purposes of this disclosure a business day is any day you are substantially open for business excluding Sundays and legal holidays)
The flexibility you have under the rule is the order with which you request the information, For example if you are wacky enough to want to know the loan term that the member is in the market for there is nothing to stop you from making that the first question you ask. There is also nothing to stop you from prequalifying members by getting only five of the magic factoids so long as the member is informed that the prequalification is not a Loan Estimate and the member is not prohibited from giving you other information.
If your staff does not properly understand this subtle but important change you won’t be providing Loan Estimates when you should be or, conversely, so mechanically conforming to these new requirements that you don’t get all the information you are allowed to before making lending decisions.
What vendors do you want to insist your members use for settlement services? The Loan Estimate requires you to provide your buyers with a breakdown of origination charges, an estimate of settlement services they cannot shop for and estimated services they can shop for.
Easy enough. But the amount that the estimated charges in a Loan Estimates can vary from actual costs disclosed in the Closing Document without triggering a tolerance violation depends on how much freedom you give your member to shop for a vendor.
This means that if you always insist that members use Old Friend John to do all appraisals and he costs more than you estimated on the Loan Estimate then the member can’t be made to eat the difference.
But let’s say you allow the member to shop for an appraiser and provide him with a list with the name of at least one appraiser that he may use. If your buyer chooses from you list of suggested appraisers than the appraisal charge is grouped together with other charges that, in the aggregate, can vary by up to 10% with the increased cost paid by your member.
Let’s say that after giving you member the right to shop for settlement costs and providing him with a list of appraisers he ignores your recommendation and gets ripped off by his Uncle Bob. The increased cost can be passed on completely to the member.
If I succeeded in scaring you into action just go to the CFPB’s website-it has some great resources. Have a nice weekend.