We are all very aware of the voluminous residential mortgage lending regulations issued by the Consumer Financial Protection Bureau (CFPB) over the past several years, regulations that have had a significant impact on residential mortgage lending throughout the country.
It is now time to get ready for another significant CFPB regulation, the combined “TILA-RESPA Integrated Disclosure Rule.” This new regulation goes into effect for residential mortgage loan applications received on or after August 1, 2015. The effective date of August 1st, 2015 is less than 8 months away and that time will pass very quickly. Residential mortgage lenders are well advised to begin an implementation plan to be prepared for the effective date.
The new rule implements the requirements set out in Dodd-Frank by integrating four existing forms into two forms. The purpose of the new forms is to make the residential mortgage loan process and closing easier for consumers to understand. The two new disclosures are the “Loan Estimate” and the “Closing Disclosure”.
The Loan Estimate combines and replaces the current Early Truth-in-Lending Disclosure (TIL) and the Good Faith Estimate of Closing Costs (GFE). The Loan Estimate must be provided to the consumers within 3 business days of loan application. It will provide a summary of the key terms and estimates of the loan and closing costs.
There is a 7-day waiting period after the Loan Estimate is provided to the applicant before the transaction may close. This waiting period may be waived if a “bona fide financial emergency” exists and there is a hand written and signed statement from the applicant that explains the reason for the waiver.
The lender is deemed to have received the consumer’s loan application (thus triggering the requirement to provide the Loan Estimate within 3 business days) when the lender has the following 6 items: borrower’s name, income, social security number, property address, estimated value of the property and the mortgage loan amount sought.
The Closing Disclosure combines and replaces the current Final Truth-in-Lending Disclosure (TIL) and the HUD-1 Settlement Statement. The Closing Disclosure must be provided to the consumer three days before “consummation” of the loan, which is usually the closing date.
Under the new regulation, the task of completing the Closing Disclosure may be delegated to the title company but the lender remains responsible for the content and accuracy of the disclosure. Historically, Texas title companies have acted as escrow agents for transactions involving title insurance policies and have prepared the final HUD-1 Settlement Statements with information provided to them before closing. In many instances, only the title company had all of the various costs and charges that needed to be shown on the settlement statement. Under the new CFPB rule, responsibility for completion of the Closing Disclosure has been transferred to the lender. After the new regulation goes into effect, good, clear communication between the lenders and title companies will become more important than ever before.
Suggested Plan of Action for Residential Mortgage Lenders
1. Lenders should become familiar with the new Loan Estimate and Closing Disclosure that will be used with applications received on or after August 1, 2015. The CFPB website has provided a good guideline for completion of these new forms. See: consumerfinance.gov/f/201409_cfpb_tila-respa-integrated-disclosure-rule_compliance-guide.
2. Lenders should discuss the new requirements and forms with their Loan Origination System providers; obtain a timeline from those providers and a date when the providers will begin training lenders’ personnel on the new requirements and forms.
3. Lenders should discuss the new requirements with the title companies they already use to make sure those title companies/closers will be ready for the new regulation.
4. Lenders should develop their own timeline for implementation of the new forms. Lender may NOT use the new forms before August 1, 2015.
5. Lenders should educate their personnel about the new forms.
6. Lenders should educate real estate agents and other service providers about the new requirements.
Our firm is committed to helping credit unions prepare for this massive change. Beginning in March, 2015, we will schedule classes that cover the basics of the new regulations and provide hands-on training in completing the new disclosures.
If you would like assistance to prepare your staff for the new disclosures, please call me, Karen Miller or Michael Baird and we will be glad to help.
All the best,
Law Offices of Morton W. Baird II
242 West Sunset Ste 201
San Antonio, Texas 78209
210 828 5844