Integrated Mortgage Disclosures Improve Clarity

CFPB’s consolidated final rule streamlines TILA/RESPA requirements.

February 16, 2014

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:

  • Retains the current definition of “finance charge.” The proposed rule would have redefined certain mortgage fees and charges as finance charges rather than “other charges,” as is currently the case. Fortunately, this proposed change wasn’t included in the final rule.
  • Doesn’t require creditors to keep records of the Loan Estimate and Closing Disclosure forms provided to borrowers in an electronic, machine-readable format. Public comments raised implementation and cost concerns.
  • Doesn’t require disclosure of the “cost of funds,” which reflects “the approximate amount of the wholesale rate of funds in connection with the loan.” The Dodd-Frank Act mandated the cost of funds disclosure, but it caused confusion during consumer testing.

TILA/RESPA consolidation

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.


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:

  • Provision by mortgage broker. Either a mortgage broker or creditor can provide a Loan Estimate form, but in either case the creditor remains responsible for complying with all requirements concerning provision of the form.
  • Defining an application. The final rule defines a mortgage “application”— as it applies to the three-day rule—as a document containing the borrower’s name, income, Social Security number to obtain a credit report, the property address, an estimate of the value of the property, and the mortgage amount the borrower seeks.
  • Limitation on fees. Consistent with current Regulation Z requirements, the creditor generally can’t charge borrowers any fees until aft er the borrowers have been given the Loan Estimate form and have communicated their intent to proceed with the loan. An exception allows creditors to charge fees to obtain borrowers’ credit reports.
  • Disclaimer on early estimates. Should creditors provide borrowers written estimates or advertisements prior to application, they must include a disclaimer to prevent confusion with the Loan Estimate form.

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:

  • Timing. If the creditor makes certain significant changes between the time it provides the Closing Disclosure form and the closing—specifically, if the APR increases by more than 0.125 % for most loans (and 0.25% for loans with irregular payments or periods), changes the loan product, or adds a prepayment penalty to the loan—the creditor must provide the borrower a new form and an additional waiting period of three business days aft er its receipt. Creditors can disclose to consumers less significant changes by providing a revised Closing Disclosure form at or before closing, without delaying the closing.
  • Provision of disclosures. Currently, settlement agents must provide the HUD-1 under RESPA, while creditors must provide the revised Truth in Lending disclosure under TILA. Under the final rule, the creditor is responsible for delivering the Closing Disclosure form to the borrower, but creditors may use settlement agents to provide the Closing Disclosure, provided they comply with the final rule’s requirements.

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:

  • The creditor or mortgage broker;
  • An affiliate of the creditor or mortgage broker; and
  • The creditor or mortgage broker, when the borrower is forbidden to shop for a better deal.

Charges for other services can increase, but generally not by more than 10%, unless an exception applies.

The exceptions include, for example, situations when:

  • The borrower asks for a change;
  • The borrower chooses a service provider not identified by the creditor;
  • Information provided at application was inaccurate or becomes inaccurate; or
  • The Loan Estimate expires. When an exception applies, the creditor generally must provide an updated Loan Estimate form within three business days.

MICHAEL McLAIN is CUNA’s assistant general counsel and senior compliance counsel.