For more than 30 years, lenders have been required under federal law to provide consumers with two different disclosure forms when applying for a mortgage and two more different disclosure forms at the time of closing. Because the forms were created by different federal agencies and required under both the Real Estate Settlement Procedures Act (RESPA) and the Truth in Lending Act (TILA), these forms were inconsistent, overlapping and confusing to the consumers.1
The Dodd-Frank Wall Street Reform and Consumer Protection Act mandated that the Consumer Financial Protection Bureau (CFPB) integrate these disclosure forms to simplify the process for consumers.2
On December 31, 2013, the CFPB issued its new rules for the residential mortgage disclosures, and on January 20, 2015 the CFPB issued new amendments to the rules.3 While these rules and the subsequent amendments will not be implemented until August 1, 2015, those affected by these new rules, including lenders, real estate agents and escrow agents, should become familiar with the new forms and their requirements. While the new forms should be clearer and easier to use, the CFPB has also issued detailed instructions on how to complete these forms to prevent confusion.
The new rules will apply to, and the new forms will be used for, most closed-end consumer mortgages. The new rules, however, do not apply to home equity lines of credit, reverse mortgages or mortgages secured by a mobile home. They also do not apply to loans made by a lender who makes five or fewer mortgages per year.
When applying for a loan, the new form the lender will use is the Loan Estimate (LE) form. The LE form will replace the Truth-In-Lending Disclosure and the Good Faith Estimate. It will help consumers understand the risks, costs and features of the mortgage for which they are applying. At the time of loan closing, the new Closing Disclosure (CD) form will replace the HUD-1 Settlement Statement and the Final TILA form. It will help consumers understand all of the costs surrounding the loan transaction.
The LE form must be delivered to the consumer no later than three days after the lender receives the application.4 The new rule states that an application is considered received when the consumer has given the lender the following information:
- Consumer’s name;
- Consumer’s Social Security Number;
- Consumer’s income;
- Address of the property;
- Estimated value of the property; and
- Mortgage amount requested.5
The limitations on the application information are intended to make it easier for consumers to shop for loans. Lenders are not permitted to ask for any additional information from, or charge any fees to, the consumer until the lender has issued the LE form.6 There is, however, an exception to this rule, allowing lenders to charge a fee to consumers to obtain their credit reports.
When the lender issues the LE form, the interest rate is not locked. The rule requires that no later than three days after the interest is locked, the lender will provide a revised version of the LE form to the consumer with the revised interest rate and other charges that are dependent on the interest rate.7
The CD form must be delivered to the consumer no later than three days before consummation of the loan.8 This is longer than the current one-day waiting period and works to prevent surprises to the consumer for fees due on consummation. It is important to note that consummation does not mean the closing of the property. The CFPB defines consummation to be the time in which the consumer becomes contractually obligated to the lender on the loan.
The CD form must be re-disclosed to the consumer and is subject to an additional three day waiting period, if any of the following information changes:
- A change in the APR that is greater than one-eighth percent (or a one-fourth percent change for loans with irregular payments or periods);
- An addition of a prepayment penalty; or
- A change of the loan product.
A change in the loan product could include a change in the periodic payment or the change from an adjustable rate to a fixed rate. Less significant changes can be disclosed through a revised CD form also, but this can be provided to the consumer at or before closing without delaying the closing.9
The CFPB recognizes that lenders often use settlement agents to close on mortgages and real estate transactions. Thus, while the lenders are ultimately responsible for ensuring the CD form is provided to the consumers, settlement agents may provide the CD form, so long as they comply with the rules.10
While the new rules will provide consumers with more flexibility to shop for loans and more knowledge regarding the loan transactions, lenders and others need to ensure they are prepared to implement these new forms by August 1.
More information regarding the TILA-RESPA Integrated Mortgage Disclosure Rule can be found at the CFPB’s website.
1RESPA (Regulation X) is codified at 15 U.S.C. §§ 2601-2617 and TILA (Regulation Z) is codified at 15 U.S.C. 1601.
212 U.S.C. 5532(f).
3Integrated Mortgage Disclosures under the Real Estate Settlement Procedures Act (Regulation X) and the Truth In Lending Act (Regulation Z). 12 CFR 1024 and 12 CFR 1026.
412 CFR 1026.19(e)(1)(iii).
512 CFR 1026.2(a)(3).
612 CFR 1026.19(e)(2)(i).
712 CFR 1026.19(e)(3)(iv)(D) (2015).
812 CFR 1026.19(f)(1)(ii).
912 CFR 1026.19(f)(2).
1012 CFR 1026.19(f)(1).