As a result of the subprime mortgage meltdown and financial crisis of 2007-08, the Consumer Financial Protection Bureau (CFPB) was created and authorized by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act). The CFPB is responsible for consumer protection in the financial sector, e.g. banks, credit unions, hard money lenders, mortgage lenders, commercial mortgage lenders, subprime mortgage lenders, private mortgage lenders and other financial companies in the United States. Consequently, the mortgage lending industry has shifted its focus almost exclusively to compliance issues, which has caused a major and ongoing concern for all lenders, specifically hard money lenders and private lenders.
Integrated Disclosure Rule
The Dodd-Frank Act directed the CFPB to integrate the mortgage loan disclosure under TILA and RESPA (Sections 1032(f), 1098 and 1100(a)). On November 20, 2013 the CFPB released the 1,888 page final TILA-RESPA Integrated Disclosure Rule (TRID). The final rule became effective on October 3, 2015. The final rule mandates the use of two disclosures; (i) the three-page Loan Estimate (which replaces the Good Faith Estimate (GFE) and the initial Truth in Lending Disclosure); and (ii) the five-page Closing Disclosure (which replaces the HUD-1 and the final Truth in Lending Disclosure). These new forms are designed to provide disclosures that will be helpful to consumers in understanding the key features of their mortgage loan, costs, and risks of the mortgage for which they are applying.
New Documents & New Deadlines
A Loan Estimate form must be provided by either the mortgage broker or creditor (i.e. lender or hard money lender) and placed in the mail no later than the third business day after receiving the consumer’s consumer mortgage loan application. The Loan Estimate form must also be delivered or placed in the mail no later than the seventh business day before consummation of the transaction. Without regard to who provides the Loan Estimate form, the creditor will remain responsible for ensuring that the borrower timely receives the Loan Estimate with all the required information. It is very important for the creditor and mortgage broker to maintain communication since the creditor is legally responsible for any error or defect in the mortgage broker’s Loan Estimate.
A creditor is responsible for delivering and ensuring that the Closing Disclosure form is received at least three business days before the consumer closes the mortgage loan. As with the Loan Estimate, the creditor retains the ultimate responsibility and liability for ensuring that the disclosure is provided The Closing Disclosure form contains additional new disclosures required by the Dodd-Frank Act and a detailed accounting of the settlement transaction.
The end results
As a result of the Dodd-Frank Act, many banks and most hard money lenders have discontinued offering homestead loans. Any hard money lender who makes five or more consumer mortgage loans in a calendar year is subject to TRID and, therefore, must comply and stay abreast of all the new laws and regulations. The end result is that the consumers have fewer options for financing. Despite the new laws and regulations, AMI continues to make homestead loans.
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