Introduction to the Closing Disclosure

After Oct. 3*, all consumers who received a Loan Estimate must also be provided with a final disclosure called the Closing Disclosure.

The form replaces the HUD-1 and the final Truth-in-Lending disclosure, and is intended to make a final disclosure of the actual costs and terms of the particular mortgage loan for which the consumer has applied.

Here are a few things you should know about the Closing Disclosure before Aug. 1:

1. The creditor is required to provide the Closing Disclosure to the consumer at least three business days prior to consummation. For these purposes, a business day is any day except Sunday and legal holidays. The creditor may either deliver the Closing Disclosure to the consumer in person or by mail. If the form is provided to the consumer in person, he or she is considered to have received it that day; if the form is mailed, the consumer is considered to have received the Closing Disclosure three business days after it is placed in the mail. The seller must be provided with his copy of the Closing Disclosure no later than the day of consummation.
2. The three-day waiting period between the final disclosure and consummation cannot be waived by the consumer except in instances where there is a “bona fide personal financial emergency.” For example, if the consumer is in imminent danger of losing his home to foreclosure during the waiting period unless the funds are made available, then that may be considered a personal financial emergency. The consumer’s waiver must be in writing describing the personal financial emergency and specifically waiving or modifying the waiting period. The statement must be dated and signed by all parties who are primarily liable on the loan. Creditors are prohibited from using pre-printed forms for this purpose.
3. A revised Closing Disclosure will only be issued in limited circumstances. There are three categories of changes that will trigger a re-disclosure of the changed terms, but not all changes will require a new three-day waiting period. A new waiting period will be required if, prior to consummation, the disclosed APR becomes inaccurate, the loan product changes or a prepayment penalty is added. For any other changes before consummation, the creditor must ensure that the consumer receives the revised Closing Disclosure at or before consummation.
4. Your client should compare the costs and fees disclosed on the Loan Estimate to those listed on the Closing Disclosure. The costs and fees listed in the Closing Disclosure are subject to certain tolerance limits, meaning that certain categories of fees are either not permitted to increase, are permitted to increase a certain amount, or are permitted to increase. Recording fees and certain third-party fees are subject to a 10 percent cumulative tolerance, which means that the sum of all of the fees may not increase by more than 10 percent.

As we have been reporting for some time, any transaction involving a federally-related mortgage will be subject to new restrictions and will use new CFPB disclosure forms.

*The Consumer Financial Protection Bureau (CFPB) has delayed the rule’s effective date to Oct. 3, 2015.