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February 23, 2016

The Closing Disclosure

Notaries have become moderately familiar with the new Closing Disclosure. I want to stress some important points about this document that you should memorize. I also added this content to the 30 point course for future reference!

1. The Closing Estimate
Previously there was a document called the Good Faith Estimate whose current replacement would be the Closing Estimate. Although these two documents are not even close to being identical, they go over the estimated costs of the loan among other information.

2. The Truth in Lending
This is now an antiquated document. The Truth in Lending had some bizarre and unhelpful verbiage about the prepayment penalty. It said you, “will, won’t or may” have a prepayment penalty. The Closing Disclosure states if you will or won’t but omits the ambiguous word, “may” from the document.

3. The APR
In addition to going over the APR, there will be a new figure discussed on the Closing disclosure called the TIP which is the total interest percentage.

4. Taxes, Insurance, Escrow Fees
Estimated escrow costs, insurance, taxes, servicing, assumption, and appraisal costs will also be covered in this new and exciting document.

5. The property address
Many loan signing courses claim you should look for the property address on the Deed of Trust or Mortgage. You can, but it is also on the Closing Disclosure on the upper left corner.

6. The Loan Amount & Rate
This is also covered on the upper half of page one.

7. Fees associated with the loan
The Closing Disclosure replaces the TIL and the HUD-1 Settlement Statement. So, items from the Settlement Statement such as fees or costs associated with the loan will be covered on this document.

8. Calculating Cash to Close
This is a very practical section that covers total closing costs, closing costs financeed, down payment, deposit, funds for borrower, seller credits, and adjustments. The bottom line in this section is the cash to close total amount.

9. Summary of Transactions
The sale price of the property, closing costs, HOA dues, deposits, loan amount, sellers credit, rebates, and local taxes are all part of the accounting spreadsheet in this section.

10. The additional information section about the loan
This section covers other specifications about the loan such as whether or not assumption is allowed, if there is a demand feature, negative amortization, late payments, partial payments, escrow accounts, and more…

11. Next, there is a basic loan calculation similar to what the TIL had with the total payments, finance charge, amount financed, APR, and the new figure which is the TIP.

12. There is a section listing other disclosures which will list the appraisal, contract details, liability after foreclosure (keeping it positive), refinance, and tax deductions.

13. And last there is contact information of the Lender, the Real Estate Brokers, and the Settlement Agents.

Sign below.

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Applicant Signature Date

Eventually I will create some test questions out of this material. I already have one, but I will derive some others as well.

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You might also like:

Ken’s tips for the Closing Disclosure
http://blog.123notary.com/?p=17116

The 30 point course’s guide to the Closing Disclosure
http://blog.123notary.com/?p=14291

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April 12, 2015

Point (17) The APR; Marcy Practices Explaining the APR

Marcy’s husband came into the room and said, “It sounds like a broken record in here, what are you doing?” Marcy, having grown up with CD’s couldn’t understand the analogy. Marcy informed him that she was practicing explaining the APR. But, that the definition was long and complicated, so she had to keep saying it over and over until it was natural. Then, tomorrow she planned to do the same thing. You get in practice, and you get out of practice just as easily, so Marcy decided to always be at the top of her game.

That night while they were sleeping, Marcy started talking in her sleep, “It doesn’t include closing costs… it is compounded annually.” If her husband hadn’t already been asleep, he wouldn’t fallen asleep from such a boring rant. Her husband was sleeping during this episode, but his subconscious heard everything and he started talking in his sleep saying, “Why can’t she just stay home and take care of Chuckie? snore…. snore… Chuckie…. snore…”

So, Marcy got to her next signing. They went through the documents. Then, she said, “Do you want me to tell you why your APR is higher than your Rate?” The borrower said, “Actually, our Lender already told us.” Marcy realized that her borrowers knew more than she did about loans. But, she didn’t regret practicing. It was one less thing to screw up on some future loan. At this point Marcy didn’t care how often she had to know something, she just didn’t want to screw up and lose her self-respect. It took about seven more signings until she had a borrower who was very confused. Marcy rattled off her definition of the APR and the borrower had to ask her to repeat it slowly. After a few tries the borrower kind of understood the inverse relationship of the equation and how some of the fees and closing costs were deducted. Marcy had memorized exactly which fees were included or excluded from the formula for calculating the APR and people were very impressed with her knowledge. A few asked her if she was an Escrow Agent.

Marcy was also smart by including a disclaimer in her speech stating that her explanation of the APR was a general one and wasn’t necessarily applicable to the borrower’s particular transaction in all ways.

The next thing you know the borrowers were asking Marcy for legal advice. Once again, Marcy played her cards correctly and told them that she was not an Attorney, and that she could not answer legal questions for them. Then, she suggested that they contact an Attorney. Another smart move. It looks like Marcy went from being clueless to being a very savvy and satisfied Notary in only a few weeks of hard knocks and studying. That night in her sleep, she went “z-z-z-z-z-z.”

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Point (17) The APR
The APR is one of the most frequently asked about loan terms that exists. Notaries and Mortgage Brokers almost always sound very poorly rehearsed when they explain this very basic concept. To avoid sounding unprofessional, try to memorize as much as you can about how the APR is calculated, and also try to rehearse a comprehensive definition of the APR so that you will appear knowledgeable to clients and to us when we test you!

Quick Facts

(1) The APR is documented on the Truth in Lending Disclosure.

(2) The APR is usually but not always higher than the Rate.

(3) Your definition for the APR should include the fact that it could include loan origination fees, closing costs, appraisal fees, inspection fees, points, escrow fees, notary fees, and other costs of the loan — those are some of the big ones.

(4) If you mention that the APR is often used to compare loans, you get points on the phone test.

(5) If you mention that the APR might be compounded, you get points.

(6) Several notaries have claimed that there is no government standard for computing the APR, it is up to each individual lender.

(7) You could also claim that the APR includes the interest rate, all fees and costs of the loan, and incorporates them all into a compounded Annual Percentage Rate.

(8) There are many ways to define the APR, the key is to mention all of the components in a clear and easy to understand way.

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When we ask notaries about the APR, the answers we get are very inconclusive such as:

“It included the fees”
“It is the cost of the loan”
“It has the interest and fees”
“It is different from the Rate because it is annual”

How unprofessional. If you are a professional signer, you need a professional definition.

A Mortgage Company’s definition of the APR
The Annual Percentage Rate (APR) is an interest rate that is different from the note Rate. It is commonly used to compare loan programs from different lending companies. The Federal Truth in Lending law requires that mortgage companies disclose the APR when they advertise a rate.The APR does NOT change or affect your your monthly payments. Your monthly payments are a function of the interest rate as well as the length of the loan. We provide calculators to calculate your monthly payment as well as your APR.

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Jeremy’s official definition of the APR
The APR is the relationship between the payments and the amount borrowed, minus the fees expressed as a compounded annual rate. This rate is often used to compare the different loans borrowers have to choose from. The APR is almost always higher than the Rate. The Rate, on the other hand, is a monthly percentage relationship between the payments and the total amount borrowed, including fees.

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Fees included in computing the APR:
Points (discount and origination points)
Pre-paid interest
Loan processing fees
Underwriting fees
Document preparation fees
PMI – Private Mortgage Insurance
Appraisal Fees
Credit Reporting Fees

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Fees not normally included when computing the APR
Title or Abstract Fees
Escrow Fees
Notary Fees
Home Inspection Fees
Transfer Taxes
Recording Fees

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Although my delightful sounding definition of the APR sounds very professional, there is no reason why you shouldn’t come up with your own, and practice it until you sound perfect. One objection that I have is that Notaries sound unrehearsed when talking about the APR even if they have signed 10,000 loans. If you are a professional, then sound professional!

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You might also like:

30 Point Course Table of Contents
http://blog.123notary.com/?cat=3442

30 Point Course (18-24) Technical Points
http://blog.123notary.com/?p=14492

How do you explain the APR to a non-borrowing spouse?
http://blog.123notary.com/?p=4455

See what the April phoninar says about the APR. Unusual info…
http://blog.123notary.com/?p=4382

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