The Dodd Frank Act directed the Consumer Financial Protection Bureau (CFPB) to implement regulations to combine the disclosures required under the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA).
The purpose of these changes was to simplify the information provided and increase consumer understanding. To that end, the CFPB consolidated four separate disclosures into two new disclosures, the Loan Estimate and the Closing Disclosure.
The Loan Estimate combines the information from the Good Faith Estimate (GFE) and the initial Truth-in-Lending Statement (initial TIL). The new disclosure is designed to provide information that will be helpful to consumers in understanding the key features, costs, and risks of the mortgage loan for which they are applying.
The Closing Disclosure combines the information from the HUD-1 Settlement Statement (HUD-1) and the final Truth-in-Lending Statement (final TIL). The disclosure is designed to provide information that will be helpful to consumers in understanding all of the actual costs of the transaction.
The new forms will be required for applications taken on or after August 1, 2015. Please note, the new forms cannot be used for applications taken before the effective date, so systems will be required to accommodate both sets of forms for a period of time.
Updated Definition of Application
An application is received when the loan originator (LO) receives the six (6) points of data, which include the applicant’s name, social security number to obtain a credit report, gross monthly income, property address, estimated value of the property address, and loan amount sought. The seventh catchall element of “any information deemed necessary by the loan origination” has been removed.
Prohibition of Collecting Payments
Collecting payments, including holding credit card numbers and checks, is prohibited until the consumer receives the Loan Estimate and expresses an intent to proceed.
Consumer Receipt of Closing Disclosure
The Closing Disclosure must be received three (3) business days prior to consummation.
Consumer Receipt of Loan Estimate
The borrower cannot receive the Loan Estimate after the Closing Disclosure. This means:
- A consumer can receive a change of circumstance Loan Estimate no later than four (4) business days prior to consummation.
- In cases where receipt cannot be evidenced sooner than the three (3) business day delivery time frame, a re-disclosed Loan Estimate may be required at least seven (7) business days prior to consummation.
- Fee Tolerance Changes
The new rules make changes to certain fee tolerances, especially fees to affiliates and services the borrower cannot shop for.
A few immediate observations
Last minute changes which require re-disclosure may create delays. This will be a critical element for purchases or any loan with expiring rate locks.
Time stamped receipts for delivery will become critical. Borrowers will have to make time to respond to communications.
Interesting to see that the elements for determining what constitutes a loan application have been revised.
Expect to see a lot more about the implementation of the new forms in the near future…