Tuesday, July 14, 2015
New Mortgage Finance Rules
The NWMLS has revised its standard forms based on new federal rules promulgated by the Consumer Financial Protection Bureau (“CFPB”), effective October 3, 2015. These rules relate to Integrated Mortgage Disclosures under the Real Estate Settlement Procedures Act (“RESPA”) (Regulation X) and the Truth In Lending Act (“TILA”) (Regulation Z).
The changes that are most relevant for real estate brokers include:
Definition of loan “application” (12 CFR 1026(a)(2));
The lender must provide a “Loan Estimate” to Buyer within three days of
The lender must provide a “Closing Disclosure” to Buyer at least three days
The lender must provide a revised “Closing Disclosure” for last minute application (12 CFR 1026.19(e));before consummation (i.e. the date the Buyer is contractually obligated for the loan) (12 CFR 1026.19(f));changes to the APR, the addition of a pre-payment penalty, or a change in the loan product at least three days before consummation (i.e. the date the Buyer is contractually obligated for the loan) (12 CFR 19(f)(2)(i)).
The NWMLS is revising its forms, so that earnest money will be refunded to Buyer after lender (defined as either the party to whom the application was submitted or the party funding the loan) confirms in writing:
a. the date Buyer applied, including a copy of the Loan Estimate provided to
b. that Buyer possessed sufficient funds to close; and
c. the reasons Buyer was unable to obtain financing by closing.
The revision to this provision requires Buyer to provide a copy of the Loan Estimate, along with written confirmation of the date Buyer applied for the loan. The new CFPB rules require the entity who received the application to provide Buyer with a Loan Estimate within three days of receiving the application. The timing of the Loan Estimate will confirm the date Buyer made loan application.
The revisions to Section 5 also clarify that if Buyer, after a good faith effort, is unable to obtain financing by the closing date, Buyer may terminate the agreement and the earnest money will be refunded to Buyer. Under the new CFPB rules, lender must provide a “Closing Disclosure” to Buyer at least three days before consummation (i.e. the date the Buyer is contractually obligated for the loan). If lender fails to do so and Buyer cannot timely close, the earnest money will be refunded to Buyer (assuming Buyer has not waived the financing contingency). Of course, the parties can always agree to extend the closing date.
A new chapter of RCW 64.04, effective July 24, 2015, governs how earnest money must be handled by the party holding the money (the “holder”) when a transaction is terminated. The statute provides that if a holder receives a written demand for the earnest money from a party, the holder must either disburse the earnest money, commence an interpleader action, or notify all other parties to the transaction of the demand within 15 days.
If holder elects to notify all other parties of the demand (as opposed to disbursing the earnest money or commencing an interpleader action) and the other parties do not object to the demand within 20 days of the holder sending the notice, then the holder must release the earnest money to the party making the demand. If the holder follows this process, it will not be liable to any party for releasing the earnest money to the demanding party.
The new CFPB rules require a revised Closing Disclosure be provided to Buyerthree days before consummation for last minute changes to the APR, the addition of a pre-payment penalty, or a change in the loan product. Section 9 (Extension of Closing) has been revised to allow for an automatic extension of closing for up to four days for a new Closing Disclosure to be provided to Buyer should one of these last minute changes occur. Please note there is no automatic extension for the situation where the original Closing Disclosure is simply not provided to Buyer in a timely manner.
Beginning October 3, 2015, new rules will require lenders to insert broker’s license numbers into the “Closing Disclosure” provided to Buyer three days before consummation (i.e. the date the Buyer is contractually obligated for the loan). In order to avoid any delay in the lender obtaining those numbers and providing the disclosure, NWMLS has added a field for the licensee numbers to the purchase and sale agreement.
In addition, the Department of Licensing is considering requiring brokers license numbers on all documents prepared by the broker.