Under the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA), the Consumer Financial Protection Bureau (CFPB) will require lenders to provide new disclosures and meet new regulations on August 1, 2015.
The new regulations, which span 1,900 pages, mandate two new disclosure forms for lenders: the three-page Loan Estimate, which replaces the Good Faith Estimate (GFE) and the initial Truth in Lending Disclosure, and the five-page Closing Disclosure, which replaces the HUD-1 and final Truth in Lending Disclosure.
The new rules require that, in most cases, the borrower receives the Closing Disclosure at least three business days before closing. (One proposed rule that was dropped was counting Saturday as a business day; Monday-Friday are defined as business days in the final regulation.)
Several other substantive changes to RESPA and TILA were also made. These changes apply to most closed-end consumer mortgages. They do not apply to home-equity lines of credit, reverse mortgages, mortgages secured by mobile homes, or creditors that make five or fewer mortgages a year. Unlike many of the CFPB mortgage rules, the final rule does not otherwise include an exception for small creditors.
The significant changes
While this list is by no means exhaustive, here are some of the changes lenders should know about.
The clock starts ticking on proving the Loan Estimate as soon as a consumer submits an application with six pieces of information:
- Social Security number
- Property address
- Estimate of the value of the property
- Mortgage loan amount sought
This is a change from the current rule under Regulation X, which allows creditors to specify "any other information deemed necessary" to trigger a GFE. As of August 1, a lender cannot require additional information, such as the desired loan product, as a condition to provide a Loan Estimate.
Another change is that Loan Estimates may be provided by either a mortgage broker or a creditor. If a mortgage broker provides the Loan Estimate, the creditor maintains responsibility for compliance with all Loan Estimate requirements.
New rules will govern construction loans after August 1. For transactions involving new construction, if the creditor expects that closing will occur more than 60 days after the Loan Estimate is provided, the creditor may issue revised disclosures any time prior to 60 days before consummation, without regard to the limitations on revising the estimated costs. However, the original Loan Estimate must clearly state that revised disclosures may be issued at any time prior to 60 days before consummation.
In addition, the Closing Disclosure adds a new wrinkle to the settlement schedule. Not only must the creditor provide the Closing Disclosure to the consumer at least three business days before the loan closes, but the creditor must also provide an updated Closing Disclosure with another three-business-day waiting period if changes are made between the time of issuance and closing, depending on the nature of the change. Alternately, the creditor may simply provide an updated Closing Disclosure by closing.
For more information about these and other significant changes that go into effect on August 1, or to learn how Baker Tilly specialists can help, connect with our team.