By Katalina M. Bianco,J.D.
The Consumer Financial Protection Bureau has updated its examination procedures to incorporate the new mortgage disclosure rules issued in November 2013. The updates are intended to provide financial institutions and other industry participants with guidance on how the bureau intends to conduct compliance examinations relating to the Truth in Lending Act and Real Estate Settlement Procedures Act and implementing regulations Reg. Z (12 CFR 1026) and Reg. X (12 CFR 1024).
Final rule. The CFPB adopted a final rule in November 2013, effective on Aug. 15, 2015, that integrates mortgage disclosures in order to change the way consumers obtain information when purchasing a home. The rule stemmed from the CFPB’s “Know Before You Owe’ initiative begun in 2011. Prior to the rule, lenders were required to provide two different disclosure forms to consumers applying for a mortgage: a Good Faith Estimate (GFE) developed by the Department of Housing and Urban Development and an “early” Truth in Lending disclosure designed by the Federal Reserve Board. In general, two different forms were required at or shortly before closing on the loan—the HUD-1 and the Fed’s Truth in Lending disclosure.
The Dodd-Frank Act required the bureau to publish rules and forms that combine certain disclosures that consumers receive in connection with applying for and closing on a mortgage loan under TILA and RESPA. The final rule creates two new disclosure forms—the Loan Estimate and the Closing Disclosure.
The Loan Estimate replaces HUD’s Good Faith Estimate and the Fed’s “early” TILA disclosure and is designed to provide disclosures that will be helpful to consumers in understanding the key features, costs, and risks of the mortgage for which they are applying. This form will be provided to consumers within three business days after they submit a loan “application.” For purposes of the final rule, an “application” consists of the consumer’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 loan amount sought.
The CFPB’s Closing Disclosure replaces the current form used to close a loan, the HUD-1 and the Fed’s revised TILA disclosure. This form is to be given to a consumer at least three business days before the consumer closes on the loan. If the creditor makes certain significant changes between the time the Closing Disclosure form is given and the closing, the consumer must be provided a new form and an additional three-business-day waiting period after receipt of the new form. The need for a new Closing Disclosure is triggered when the creditor: makes a change to the annual percentage rate above 1/8 of a percent for most loans (1/4 of a percent for loans with irregular payments or periods), changes the loan product, or adds a prepayment penalty to the loan. Less significant changes can be disclosed on a revised Closing Disclosure form provided to the consumer at or before closing, without delaying the closing.
Guidance on implementation. Since adopting the final rule, the CFPB has issued guidance intended to help financial institutions with implementation. In April 2014, the bureau released a small entity compliance guide to provide an easy-to-use summary of the TILA-RESPA integrated disclosure rule. The guide also highlights issues that small creditors, and those that work with them, might want to consider when implementing the rule.
Shortly thereafter, the CFPB released a roadmap to completing the integrated Loan Estimate and Closing Document forms. A timeline example intended to illustrate, in calendar form, the process and timing of disclosures, followed on the heels of the roadmap.
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