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Consumer Financial Protection Bureau

ALTA Webinar Discusses How CFPB's Proposed Three Day Rule Will Impact Business

August 9, 2012

Nearly 350 title insurance professionals attended a webinar on Aug. 8 provided by ALTA addressing the Consumer Financial Protection Bureau’s proposed mortgage disclosures and specifically addressed the Three Day rule.

This was the third presentation ALTA has provided since the CFPB released its proposed regulations on July 9. Participating on the webinar were ALTA CEO Michelle Korsmo and ALTA members Ruth Dillingham of First American Title Insurance Co. and Shari Schneider of Title Resource Group.

Click here to view the power point from the webinar.

The webinar addressed:

  • Current Process- getting documents to consumers today
  • CFPB intent in proposing new time frames
  • Proposed Process: getting documents to consumers three days in advance
  • What if there is a variation in actual costs
  • Possible impacts on operations
How It Works Today

Under the Truth In Lending Act and Regulation Z (as amended by the Mortgage Disclosure Improvement Act of 2008), the creditor must provide to the consumer in a residential mortgage lending transaction a final disclosure of the finance charges (and the related Annual Percentage Rate) if those charges have changed since the initial disclosures. This must be done three business days before the closing (or consummation in the wording of TILA).

Meanwhile, settlement agents currently prepare the HUD-1. Under RESPA, the settlement agent must provide the HUD-1 a day before the closing if requested by the borrower.

This process allows for flexibility to make adjustments to final amounts before closing if needed, provided the changes don’t lead to an increase in the finance charge beyond allowed tolerances.

Why CFPB Proposed Three Day Rule

Mandated by the Dodd-Frank Act, the Bureau must integrate the disclosures, In doing so, the Bureau must determine when the integrated disclosures must be provided, given that the statutory requirements are not in sync, Dillingham said.

According to the Bureau, the creditor must ensure the consumer received the disclosures no later than three business days before consummation. In its proposed rule, the Bureau indicates that section 1098 of the Dodd-Frank Act, which amends RESPA section 4 to require integrated disclosures, specifically provides that such integrated disclosures shall “include real estate settlement cost statements.” This suggests that Congress intended creditors to deliver the settlement cost statements with the TILA disclosures required to be delivered no later than three business days before consummation, according to the Bureau.

As an example, if settlement is scheduled for Thursday then the consumer must receive the disclosures by Monday, Schneider said.

“Effectively, the Bureau is putting a three business day waiting period after the final disclosure is received by the consumer,” she added. “Really their commentary talks about letting the consumer understand what they need for closing.”

Changes to the final disclosure, barring exemptions, will trigger a new three business day waiting period unless an exemption applies.

How It Works in Practice

The term “business day” means all calendar days except Sundays and legal public holidays, according to the proposal. The key in this is receipt of the disclosure, not delivery, Schneider pointed out. There are three ways to deliver the disclosure to the borrower:
  • In person: Disclosure is deemed received by the consumer the day it is delivered in person.
  • Mail/Fed-Ex/Courier: Creditor or settlement agent can presume the consumer received the disclosure three business days after mailing. This presumption may be rebutted by evidence that the consumer received the disclosures earlier or later than three business days.
  • E-mail: Same presumption as for mail. Creditor or settlement agent must comply with E-Sign and must get prior approval from the consumer to use electronic disclosure.
Waiving the Waiting Period

Schneider said it is possible, but added the rule makes it tough and discourages the use of waivers.

“A consumer may waive the waiting period and close immediately if after receiving the disclosure they declare that they have a bona fide personal financial emergency,” Schneider said. “Unfortunately, the Bureau is not clear on what this means.”

The Bureau does provide one example of an imminent foreclosure sale. The waiting period can only be waived after receiving the disclosure. Also the creditor must be provided with a dated written statement describing the emergency that modifies or waives the waiting period and is signed by all consumers who are primarily liable on the legal obligation. Printed forms for this purpose are prohibited.

There are five exemptions that will not trigger a new three-day waiting period. They include:
  • Seller – Buyer negotiation
  • Minor cost increase
  • Post Closing change to government fee
  • Correct non numerical clerical error
  • Tolerance refund
Dillingham said the Bureau recognized that sellers and buyers frequently alter the terms of the real estate transaction based on the condition of the house at the time of the walk-though inspection, which is often the day before the scheduled real estate closing, and in some cases even continue to negotiate the deal at the closing table. These negotiations may affect items included on the Closing Disclosure, which, under the proposal, must be delivered three days prior to consummation.

“As an example, assume consummation is scheduled for Thursday, the consumer received the disclosures on Monday and a walk-through inspection occurs on Wednesday morning,” Dillingham said.

“During the walk-through, the consumer discovers damage to the dishwasher. The seller agrees to credit the consumer $500 towards a new dishwasher. The creditor complies with the requirements of the rule if the creditor provides a revised disclosure at or before consummation on Thursday.”

Schneider pointed out that small miscalculations or minor changes to the transaction should not result in closing delays. Therefore, the Bureau proposes that if the amount actually paid by the consumer does not exceed the amount disclosed by more than $100, the creditor/settlement agent shall deliver revised disclosures at or before consummation. The Bureau is seeking comments to decide if the $100 price change is the correct threshold.

“This was created for prorated items,” Schneider said. “If the disclosures reflect a homeowner’s insurance premium of $800, but the premium is actually $850, the $50 understatement is not a violation. This does not, however, apply to items where there is a zero tolerance.”

Schneider added that this is an area the title industry must be very careful. The Bureau has a significant amount of commentary cautioning against inflating fees on the Loan Estimate. The intention is for true miscalculation errors.

Dillingham said the Bureau is aware that some costs are not known with absolute certainty until the documents are recorded. For example, it is possible that a locality could change its schedule of recording fees, without advance notice, the day after the consumer signs the mortgage loan documents, but before the documents are recorded. One caveat is that the redisclosure under this exemption must be received by consumer within 30 days after closing.

Inadvertent or technical errors will not be considered violations of the disclosure requirements. As an example, assume the disclosure identifies the incorrect settlement service provider as the recipient of a payment. The creditor/settlement agent must provide revised disclosures reflecting the corrected non-numeric disclosure as soon as reasonably practicable, but no later than 30 days after closing.

In regard to tolerances, if an amount listed on the disclosure exceeds the tolerance, which would entitle the consumer to a refund, the refund can be included in the disclosure without triggering a new waiting period.

Impact on Business

The first area in how the proposed three day rule will impact settlement agents is increased coordination with the lender.

Assuming settlement agents produce the Closing Disclosure, settlement agents will need to start working with lenders earlier in the process to get final numbers and approvals. If the lender provides the disclosure, settlement agents will need to provide final settlement numbers to lender earlier in the process and alert the lender of changes in those numbers and reasons for them.

“There’s an increased liability for the accuracy of these numbers,” Schneider said. “The rule makes it clear that even if the lender is not the party providing the Closing Disclosure, it remains liable for accuracy.”

As a result of more liability, lenders will want more control over the transaction, according to Dillingham.

“They will turn around and tell settlement agents what they need,” she said. “Lenders will want more documentation showing facts of when an exemption applies to the three day period. These documents will likely have to be transmitted to the lender for when it is examined by regulators.”

Loss of Productivity

This is one of the areas of the proposed rule that the industry need to provide comments and explain how it will impact staffing and processing time.

“Consumers may expect the settlement agent to be available to answer questions about the disclosures in advance of closing,” Schneider said. “This could require companies to allocate more staff time away from production and toward consumer contact.”

Instead of working on the next closing, settlement agents will be working on a file that will close some time in the next week.

“You will have to start working a file almost a week in advance of it actually closing,” Dillingham said. “It seems like you will be touching a file for a long time.”

More Information

Click here for more information about CFPB’s proposal and view all of ALTA’s advocacy efforts regarding the mortgage disclosures.

If you have questions or for more information, contact any of ALTA’s government affairs team: Justin Ailes, ALTA’s vice president of government and regulatory affairs; Jessica McEwen, ALTA’s director of government affairs; or Steve Gottheim, ALTA’s legislative and regulatory counsel, at

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