Sections 1098 and 1100A of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) direct the CFPB to publish rules and forms that combine certain disclosures that consumers receive when applying for and closing on a mortgage loan under the Truth in Lending Act (Regulation Z) and the Real Estate Settlement Procedures Act (Regulation X).
The TILA-RESPA Integrated Disclosures Rule’s purpose is to improve the way consumers get loan information when they apply for and close on a mortgage. On August 26, 2014, the CFPB and Federal Reserve Board co-hosted a webinar to address questions about the final TILA-RESPA Integrated Disclosures Rule that will be effective for applications received by creditors or mortgage brokers on or after August 1, 2015.
This rule effects two major federal regulations, consumers’ experience in shopping for and closing on mortgages, and almost the entire residential real estate industry. The requirements are about two disclosure documents, the Loan Estimate and the Closing Disclosure. After proposing the initial rule, the CFPB received over 3,000 comments, which they analyzed before responding. After finalizing the rule, it is important to understand the differences between the proposal and the rule itself, as well as what the rule does.
It’s important to understand the difference between the proposal and the rule as there were many significant changes.
|What The Proposal Said||The Final Rule|
|“all-in APR”||In the proposal, it would have changed the definition of the finance charge, which is used to calculate the annual percentage rate, or APR||Not included as it would have cost industry a lot and affected available loans to consumers, however this is still under review.|
|Waiting period after Closing Disclosure before closing the mortgage||Lenders should reissue that disclosure with any changes, followed by a new three-day waiting period||New waiting period comes only if there are substantial changes to the APR, the loan product itself changes, or the lender adds a prepayment penalty. Also consumers have the right to examine the Closing Disclosure on request the day before closing|
|Machine-readable record retention||Required||Not required, but additional study and discussion will occur|
|Issuing the initial Loan Estimate||Required lenders to issue the initial Loan Estimate within three days of a consumer applying for a mortgage; Saturdays were included in that time frame||To compensate for the burden this would cause for Community Banks and Credit Unions, the three-day rule only includes days the lender is actually open|
Now that we understand the key differences, it’s important to understand the rule itself. The final rule applies to most closed-end consumer mortgages. It would not apply to home-equity lines of credit and reverse mortgages. The new rule contains new rules and forms for two disclosure forms consumers receive in the process of getting a mortgage loan: the Loan Estimate, and the Closing Disclosure.
The Loan Estimate must be provided to the consumer within three business days (days the lender is open) after application, this replaces the “Good Faith Estimate” required under RESPA and the “early Truth-in-Lending” required under TILA. If a lender decides to use a mortgage broker, the lender still retains responsibility for ensuring the consumer is provided the Loan Estimate. The consumer may not be charged any fees until after the Loan Estimate is provided and the consumer has decided to proceed with the transaction (exception for the costs of credit checks only).
The lender is required to give the Loan Estimate if the consumer provides the following: Consumer name, income, social security number (for credit report), property address, estimate of the value of property, mortgage loan amount sought). The “other relevant information” currently permitted under RESPA has been removed from the current rule, however creditors are able to collect whatever information deemed necessary for the extension of credit as long as they can provide the Loan Estimate once the above six pieces of information are given.
The Closing Disclosure merges and replaces the final “TIL” statement and the RESPA-required HUD-1 settlement statement. It is five pages long and combines five pages of old forms, plus new disclosures required by the Dodd-Frank Act. The Closing Disclosure is required by the new rule and reflects the actual terms of the transaction. The creditor is required to make certain the consumer receives the Closing Disclosure no more than three business days before consummation of the loan.
The Closing Disclosure must contain the actual terms and costs of the transaction. Creditors may estimate disclosures, however, they must act in good faith and use due diligence in obtaining the information. The Closing Disclosure must be in writing, and if the actual terms or costs of the transaction change prior to consummation, the creditor must provide a corrected disclosure that contains the actual terms of the transaction.
This was the first of many webinars, and according the to CFPB, will be hosted in a Q&A format to facilitate clear guidance. Industry members have historically preferred written guidance.
The CFPB has announced they will soon release additional guidance on their website, including (but not limited to) a timing calendar for various requirements under the new rule.
Next webinar date: October 1, 2014 – to cover Loan Estimate and Closing Disclosure content.