In November, the Consumer Financial Protection Bureau (CFPB) issued the long-awaited final rule consolidating the Truth in Lending Act (TILA) and Real Estate Settlement Procedures Act (RESPA).
In addition to making a number of positive changes from the proposed rule, CFPB provided nearly 21 months until the effective date of Aug. 1, 2015.
Unfortunately, unlike many of the CFPB’s earlier mortgage rules, this final rule doesn’t include an exception for small creditors.
The CFPB’s final rule:
The final rule aims to reduce or eliminate some of the confusion created as a result of two federal agencies each developing disclosure forms based on separate federal statutes: TILA and RESPA.
Overlapping information and inconsistent language plagued these forms, making them burdensome for lenders and settlement agents to provide and explain to borrowers.READ:
The new rule integrates disclosures and explains in detail how to complete and use the forms.
The three-page “Loan Estimate,” which creditors must provide within three business days from receipt of a mortgage application, will provide disclosures that help borrowers understand the key features, costs, and risks of the mortgage for which they're applying.
The five-page “Closing Disclosure,” which creditors must provide at least three business days before loan closing, will provide disclosures helping borrowers understand all the transaction costs.
The final rule applies to most closed-end consumer mortgages. It doesn’t apply to home equity lines of credit, reverse mortgages, or mortgages secured by a mobile home or by a dwelling that isn’t attached to real property. The final rule also does not apply to loans made by a creditor that makes five or fewer mortgages in a year.
The Loan Estimate
The Loan Estimate form replaces the Good Faith Estimate the Department of Housing and Urban Development (HUD) designed under RESPA and the “early” Truth-in-Lending disclosure the Federal Reserve Board required under TILA and Regulation Z.
The final rule and the Official Interpretations contain detailed instructions on how a creditor should complete each line on the Loan Estimate form, and there are sample forms for different types of loan products.
Other considerations in the final rule:
The Closing Disclosure
The Closing Disclosure form replaces the current form used to close a loan, the HUD-1, required by HUD under RESPA. It also replaces the revised Truth in Lending disclosure required by the Fed under TILA.
As with the Loan Estimate, the final rule and the Official Interpretations contain detailed instructions on how creditors should complete each line on the Closing Disclosure form.
The Closing Disclosure form contains additional new disclosures the Dodd-Frank Act requires and a detailed accounting of the settlement transaction:
Closing cost increases
Similar to existing law, the final rule restricts the circumstances in which creditors can require borrowers to pay more for settlement services—the various services required to complete a loan, such as appraisals, inspections, etc.—than the amount stated on their Loan Estimate form.
Unless an exception applies, charges cannot increase for services provided by:
Charges for other services can increase, but generally not by more than 10%, unless an exception applies.
The exceptions include, for example, situations when:
MICHAEL McLAIN is CUNA’s assistant general counsel and senior compliance counsel.