TRUSTED INTELLIGENCE 1

TRUSTED INTELLIGENCE

POINT OF VIEW

CFPB “Know Before You Owe”

Background

The Consumer Financial Protection Bureau (CFPB) established new disclosure rules that

become effective on mortgage applications taken on or after August 1,2015. The new rule is

known as “Know Before You Owe”. The rule replaces existing mortgage disclosure forms to

improve compliance and help consumers understand and compare loan offers.

Four existing disclosures provided under the Truth In Lending (TILA) and the Real Estate

Settlement Procedures Act of 1974 (RESPA) will be consolidated into two new forms.

Good Faith Estimate

Early Truth In Lending Disclosure

HUD-1 Settlement Statement

Final Truth In Lending Disclosure

Loan Estimate Closing Disclosure

“These new forms are a big win for consumers, who can shop for a mortgage, consider their options and sign on the dotted line with

confidence.” NY Times, The New

‘Know Before You Owe’ Mortgage Forms, December 12,2013

The Loan Estimate

The new Loan Estimate will assist consumers in understanding the key features, costs and risks

of the mortgage transaction.

1. The Loan Estimate needs to be supplied to the consumer by either the mortgage broker or creditor, however; the creditor is fully responsible for complying with the rule.

2. This disclosure must be provided to the consumer no later than three business days after the consumer applies (application date) for a mortgage loan. The following constitutes an application:

 Consumer’s Name

 Income

 Social Security Number

 Property Address

 Property value estimate

 Mortgage loan amount

3. “Business days” are defined as a day on which the creditor’s offices are open to the public for carrying on substantially all of its business functions.

4. The creditor can not charge the consumer any fees until a Loan Estimate has been provided and the consumer has communicated their intention to proceed with the mortgage transaction. One exception includes credit report fees.

5. Any written estimate prior to application must contain a disclaimer to prevent confusion with the Loan Estimate form.

The Closing Disclosure

The new Closing Disclosure will assist consumers in understanding all of the final costs

associated with the mortgage transaction.

1. The Closing Disclosure must be given to consumers at least three business days before the consumer closes the loan.

2. “Business days” are defined as a day on which the creditor’s offices are open to the public for carrying on substantially all of its business functions.

3. Significant changes made (see below) between the time of the Closing Disclosure and the actual loan closing may require an additional three business day waiting period after the new Closing Disclosure is provided to the consumer.

 APR above 1/8 of one percent on fixed loans

 APR above ¼ of one percent on loans with irregular payments or periods

 Changes to loan products

 Addition of a prepayment penalty to the loan

4. The creditor is required to deliver the Closing Disclosure to the consumer, however; may use settlement agents as long as they comply with the rule.

Closing Cost Transparency

“A key mission for us is to make the financial products and services that you use more

transparent. Transparency is at the core of our agenda, and it is a key part of how we operate.

You deserve to know what we’re doing for the American public and how we are doing it.”

1. The following service fees can not increase:

 Creditor’s or mortgage broker’s charges

 Affiliate charges

 Charges for services where the consumer is not permitted to shop

2. Charges for other services may increase, however; not generally more than 10% unless one of the following exceptions applies:

 The consumer asks for the change

 The consumer chooses a service provider that was not identified by the creditor

 Application information was inaccurate or becomes inaccurate

 The Loan Estimate expires

Challenges

“A technological nightmare - The new rules will also require lenders to work even more closely

with their technology partners than they did during implementation of the ATR/QM rules.”

MortgaeOrb.com, CFPB Finalizes ‘Know Before You Owe’ Mortgage Disclosures – But concerns remain regarding the impact the new rules will have on lenders’ operations.

Implementing New Disclosures into Existing Platforms

Third Party Risk Management

Pre-Audit Review

• Analysis of regulatory requirements, including impacts to mortgage operations

• Develop operational implementation plan

• Develop business / functional requirements documents and perform testing

• Policy, procedure, operational process and governance updates

• Staff training

• Re-assessment of current third party risk management program

• Vendor agreement review & updates

• Revisions to third party oversight / monitoring process

• Policy, procedure, process and governance

• Advertising materials

• Compliance

• Technology

• Third Party

Challenges Considerations

How Can Covius Help?

Through decades of management

experience, superior technology,

and a proven track record of

providing comprehensive and

meaningful residential real estate

solutions, COVIUS can assist

companies by providing regulatory

advice, identifying company

current state, designing a well-

planned course of action,

implementing and testing new

disclosure rules, and continuing to

monitor the current and future

regulatory environment.

Provide Regulatory Advice and Conduct Initial

Gap Analysis

Design Implementation

Plan based on Results of Gap

Analysis

Assist with Implementation

Plan Execution Perform

Operational Review Ongoing

Compliance Oversight

Thank you

Michael Cozzocrea

Director Residential Asset Solutions 678-579-1010 (office)

404-702-7640 (cell)

[email protected] www.covius.com