Mortgage Matters | Leadership
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Are Realtors ready to explain the implementation of the 2015 TILA-RESPA Integrated Disclosure Rule to homebuyers?

According to a recent survey conducted by Wells Fargo, the answer is a resounding “No.”

Here’s a primer…
As part of the implementation of the final rules of the Dodd-Frank Act, there will be a combination of various RESPA and TILA regulations to create all-new disclosure documents designed to be more helpful to consumers, while integrating information from existing documents to reduce the overall number of forms.

Implementation of this new rule impacts two processes of the mortgage transaction and affects everyone involved in real estate and goes into effect August 1, 2015. As Realtors are typically the ones who have the first interaction with homebuyers, its important that they are provided with educational resources to clarify the impact these changes will make upon borrowers in their home loan shopping process and with the scheduling of loan closings when the rule’s implementation can potentially require last minute negotiations for sales contract extensions.

Key Features of the Integrated RESPA/TILA forms include:
-When applying for a loan, the new Loan Estimate (LE) document replaces the Truth-in-Lending Disclosure (TIL) and the Good Faith Estimate (GFE).
-At loan closing, the new Closing Disclosure (CD) replaces the Final TIL and HUD-1 Settlement Form.
-Loan applications taken prior to August 2015, require the use of the traditional GFE & HUD-1. As such, lenders will be telling closing agents for months to come whether to use the HUD-1 or the new CD at loan closing.

In essence, consumers will receive one document instead of two and implementation of the rule will expire the traditional Good Faith Estimate and the HUD-1 Settlement Form for certain loan transactions, but not all. These rules apply to most closed-end consumer mortgages. They do not apply to home equity lines of credit (HELOCs), reverse mortgages, or mortgages secured by a mobile home or by a dwelling that is not attached to real property (i.e., land). Oddly enough, for these loans, the old forms will continue to be used which will create a slew of issues for both lenders and settlement agents.

The Consumer Financial Protection Bureau (CFPB) governs implementation of the rules which define a loan application as the collection of these six items: 1) borrower name, 2) borrower Social Security Number, 3) borrower income, 4) property address, 5) estimate of property value, and 6) mortgage amount requested. Once these six items are collected, lenders are not permitted to require other items before issuing a Loan Estimate, as had been allowed previously before issuing TIL disclosures and/or GFEs.

The Loan Estimate
The Loan Estimate (LE) has been designed as a comparison tool intended to provide financial uniformity for borrowers with which to shop different lenders and aims to provide them with a better way to understand the information being given. Uniformity of the LE throughout the marketplace also applies to timing. The LE must be delivered to the borrower within three business days of taking a loan application. No fees can be collected and no Intent To Proceed (ITP) can be requested until an applicant has received the LE much as is required in today’s operating environment with the Good Faith Estimate.

Effects on Implementation and Unintentional Consequences
In the shopping phase of the mortgage lending process, a borrower traditionally expects to collect various pre-application cost estimates to view loan program options and these cost estimates can then be used to compare the same offerings from different lenders. These estimates are non-binding to the lender because they are based on certain assumptions which include:
-credit score
-property type (single-family, condo, PUD, number of units (1-4)
-value of property
-loan amount
-intended occupancy (owner-occupied, second home, investment)
-debt-to-income ratio (DTI) <= 43%
-date and time of pricing request

A fault of the proposed LE is that it doesn’t list all assumptions the lender has made in its calculation of pricing for clarity of comparison from one lender to another.

To provide a pre-application cost estimate, a lender needs only three of the six components that define a loan application – borrower name, estimate of property value and mortgage loan amount requested. Therefore, providing pre-application cost estimates does not trigger the issuance of regulatory disclosures for loan application.

Today, there is no rule in existence that prohibits a lender from issuing of a pre-application cost estimate prior to a borrower making full loan application. After August 2015, again, there is no rule that will prohibit this activity. Post August 2015, a pre-application estimate is prohibited to look like either the new LE or the existing GFE and will need to include specific language that it is not to be considered an LE.

Overall, the Loan Estimate is intended to give consumers more helpful information about the key features, costs and risks of the loan for which they are applying, but here’s the thing… If lenders begin using the LE in place of designing pre-application cost estimates and if their loan operating systems (LOS) have limitations that simultaneously prohibit the issuance of an LE to only instances where all six components of a loan application are received in order to ensure compliance with the timing of the delivery of the LE to the borrower (as they currently do when issuing a Good Faith Estimate [GFE]), then a borrower will essentially have to make application with a lender in order to receive the Loan Estimate– which is then counterintuitive to the partial intent of the LE which is to compare loan options prior to making application.

Additionally, the TILA/RESPA rule prohibits a lender from requiring that supporting documentation be delivered prior to issuing the new Loan Estimate. As such, in most cases, the LE will be issued based on the unverified information that is provided to a mortgage loan originator (MLO). If borrowers unintentionally misrepresent their income, assets, property type or intended occupancy between one lender and another, the LE’s (and/or pre-application cost estimates) received from each lender will invariably produce different pricing.

The Closing Disclosure
The second component of the RESPA/TILA integrations is the Closing Disclosure and is intended to reduce surprises at the closing table regarding the amount of cash borrowers will need to bring to the closing table. The new Closing Disclosure (CD) is a blend of the existing Truth-in-Lending (TIL) disclosure and the Settlement Statement (HUD-1). It’s important to note that the new CD is governed by the Truth-in-Lending Act (TILA), not the Real Estate Settlement Procedures Act (RESPA). TILA provides different accuracy expectations and enforcement provisions than RESPA, as well as some differences in definitions, with associated risks and penalties that are much more severe than RESPA.

The biggest change that will come from the TILA-RESPA Integrated Disclosure Rule is that the borrower must receive the CD at least three business days prior to consummation as opposed to the current one day requirement of delivery for the HUD-1.

TILA defines consummation to be: “The time that a consumer becomes contractually obligated on a credit transaction.” Each lender is left to decide at what point it considers that a borrower has become contractually obligated on a transaction. Although a 3-day right of rescission rule applies when refinancing owner-occupied properties, many lenders are choosing to define the consummation date as the date the borrower signs the loan documents even though technically, the borrower still has three days to rescind the offer.

While its affect is no doubt a positive for all parties, its implementation is creating major challenges for lenders and settlement agents alike. Traditionally, settlement agents prepare the HUD-1 Settlement Statement. In this new environment where lenders are required to show compliance of delivery of the Closing Disclosure to the borrower, there is much debate and concern over who is responsible for the accuracy of the CD. Lenders can only guarantee their fees. Settlement agents are responsible for ensuring all other fees are accurately represented on the closing statement. This marriage of responsibilities is requiring lenders and settlement agents to open better lines of communication much earlier in the process.

RESPA-TILA Integration Details
The new Loan Estimate consists of three pages and the Closing Disclosure consists of five pages.  For borrowers and Realtors, to view the proposed new disclosures, visit the Consumer Financial Protection Bureau (CFPB) homepage and scroll to the Participate tab and then select the dropdown for Mortgages. For lenders, the CFPB has also issued a detailed 96 page explanation of these two new forms which can be viewed online at Guide to the Loan Estimate and Closing Disclosure Forms.

The World Is So Loud

What ever happened to thinking before we speak? I hear crowds chanting to tear down our system of order and these nationwide protests are calling for what exactly? Are we preferring a lawless existence to one that is flawed by the very nature of our humanity?  Two officers were gunned down on Saturday in Brooklyn, NY and Sunday morning, another was gunned down in Tarpon Springs, FL.

We want officers to trust that we have good intentions. How can we ask them to be compassionate, when we show that we aren’t on their team? Instead of tearing them down, we must raise them up. We can begin by offering the respect and kindness that one would show to their son or daughter who wears the uniform. That officer is a husband/wife, father/mother, brother/sister, son/daughter, and friend to someone. They offer what many of us are unwilling to give.

While I observe the system isn’t perfect, criminal acts of violence against those who are called to serve and protect incites further fear and apprehension. Is this what we want our police officers to feel? Police officers have families and while we suppress our thoughts of the dangers they face on the daily, this recent uprising is causing us to question whether their honorable commitment is worth the senseless sacrifice of their lives. Shame on those who don’t value a life, any life.

I’ll share a story of how fear incites anger and leads to aggression. When I began my career in mortgage sales, I was often on the road meeting with strangers outside of the office. To protect myself, my husband insisted that I learn how to use and carry a gun, so I did.

One afternoon, I was driving in traffic and I absentmindedly cut off another driver. The man was angry and let me know as much. I blew him off and this further aggravated him. At our next stop, he continued to yell at me. Being young and stupid, I yelled back and continued the exchange. I became increasingly afraid that he was going to get off the car and come at me. So what did I do? I took my gun out of the glovebox, cocked it back and laid it on the passenger seat and waited to show him that I could and that I would protect myself. But did I really need to?

As we continued to push through traffic, I thought to myself, ‘This is crazy. I’m wiling to shoot this person, for what?’ So, rational thought returned and I turned off on the next street, pulled over, took a few deep breaths and made the decision to never put myself in that position again. A few things changed on that day. First thing is that I no longer carry a weapon. Second is that I began to take appointments with clients only in my office or in real estate offices. Third thing is when I realize that I cut someone off in traffic, I roll down my window and profusely apologize before they can start screaming. And lastly, I don’t respond to angry drivers.

This is my nephew Brian and his son, Shayne. His wife is seven months pregnant with a daughter on the way. Our family prays for his safe return every day and while we hope that he never has to draw his weapon, I hope he doesn’t hesitate and draws his first.

Brian and Shayne

Psychological Impact of the Recession and Housing Recovery

By all accounts, being a homeowner is seen by most as a sign of great accomplishment and success. Where we live affects our perceptions of self-esteem, perceived control of our environment, and financial security. Its interesting to see the results of a Harvard Study on Reexamining the Social Benefits of Homeownership after the Housing Crisis where despite the sufferings of foreclosure, owning a home remains an important desire for many Americans.

During the recent recession, home values fell dramatically, resulting in massive decreases in household wealth. Homeowner equity reached an all-time high of $13.5 trillion in 2006, but by 2009, had fallen to $6.2 trillion. Mass unemployment made it difficult for many to make their mortgage payments and to adequately maintain or repair their homes and many suffered the negative psychological emotions of foreclosure including anxiety, stress, fear, hopelessness, depression and embarrassment.

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Elements of Women in Leadership Roles

I wonder if there is a way to talk about being a woman in a male dominated field or an ethnic minority in an organization that is not very diverse, without receiving a negative, defensive reaction?  Have we evolved enough to have a conversation about what is prevalent without offending?  Whether we’re women or men, we have mindsets about women and men, and about careers in leadership.  Unexamined mindsets won’t close the gender gap at the top.

Yes, its true that women are generally groomed to be nurturing, caring and supportive and as tribes, we seek leaders who are risk-takers, aggressive, assertive, and confident.  How would an organization benefit by having a leader that is both confident and caring, assertive and nurturing?   Can women show all attributes of great leadership while remaining feminine?  Must we fold away our floral dresses and replace them with standard issue blue, grey and black suits to be taken seriously? No. I believe those who can turn those traits on and off – depending on the situation – can find great successes at executive leadership levels without masking their identities.

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