CFPB PROPOSED REGULATIONS TILA/RESPA DISCLOSURES For more than 30 years, 2 different disclosure forms to consumers applying for a mortgage Developed by 2 different federal agencies under 2 federal statutes: the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act of 1974 (RESPA) The information is overlapping and language inconsistent. Consumers found confusing.
Dodd-Frank Wall Street Reform and Consumer Protection Act directs the CFPB to combine the forms. 1st new form -the Loan Estimate- is designed to provide disclosures that will be help consumers understand key features, costs, and risks of mortgage
The 2nd form - the Closing Disclosure - provides disclosures that will helpful consumers understand all of the costs of the transaction.
Forms use clear language; designed to make it easier to locate key information interest rate monthly payments costs to close the loan Forms provide more information to help consumers decide whether they can afford the loan to compare the cost of different loan offers, including the cost of the loans over time
New forms reconcile the differences between the existing forms and combine several other mandated disclosures. CFPB has provided detailed instructions on how to complete the new forms; reducing burden on lenders and others in preparing forms in the future.
Applies to most closed-end consumer mortgages. Does not apply to: home-equity lines of credit reverse mortgages mortgages secured by a mobile home or by a dwelling that is not attached to real property Does not apply to loans made by a creditor who makes 5 or less mortgages/yr
LOAN ESTIMATE Replaces 2 current Federal forms: Good Faith Estimate designed by the HUD under RESPA and the early Truth in Lending disclosure designed by the Federal Reserve System under TILA. It also incorporates new disclosures required under Dodd- Frank Act. The lender may rely on a mortgage broker to provide the Loan Estimate form. However, the lender also remains responsible for the accuracy of the form.
LOAN ESTIMATE FORM Timing: lender or broker must give within 3 business days after the consumer applies for a mortgage loan. Rule contains definition of an application. Limitation on fees: lender generally cannot charge consumers any fees until consumer has been given the LE form and the consumer has communicated his/her intent to proceed. Exception: credit reports. Disclaimer on early estimates. Lenders/brokers may provide consumers with written estimates prior to application. Estimates must contain a disclaimer to prevent confusion with the LE form. Disclaimer not required for advertisements.
CLOSING DISCLOSURE Replace the current HUD-1 and the revised Truth in Lending disclosure Contains additional new disclosures required by the Dodd-Frank Act and a detailed accounting of the settlement transaction.
Timing: must be given at least 3 business days before the consumer closing. If changes occur between the time the form is given and the closing, the consumer must be provided a new form. Then, the consumer must be given 3 additional business days to review that form before closing. Exception: negotiations between buyer/seller after the final walk-through, minor changes (less than $100 in increased costs).
Provision. Currently, settlement agents required to provide HUD-1; lenders required to provide revised Truth in Lending disclosure. CFPB proposes 2 alternatives for who is required to provide consumers with the new Closing Disclosure form. #1: lender would be responsible for delivering the Closing Disclosure form to the consumer #2: lender may rely on the settlement agent to provide the form. However, lender would remain responsible for the accuracy of the form
Limits on Closing Cost Increases Rule restricts the circumstances in which consumers can be required to pay more for settlement services (i.e, appraisals, inspections, etc) than the amount stated on their LE form, unless exception applies.
CHARGES THAT CAN T INCREASE AT CLOSING: lender's/mortgage broker's charges for its own services; charges for services provided by an affiliate of the lender or mortgage broker; charges for services for which the lender or mortgage broker does not permit the consumer to shop unless exception applies, charges for other services could not increase by more than 10%
CHARGES THAT CAN INCREASE AT CLOSING - Consumer asks for a change; Consumer chooses a service provider that was not identified by the lender; Information provided at application was inaccurate or becomes inaccurate; Loan Estimate expires; When an exception applies, the lender generally must provide an updated Loan Estimate form within 3 business days.
CHANGES TO APR Redefines the way APR is calculated. APR encompass almost all of the up-front costs of loan; making it easier for consumers to use APR to compare loans and easier for industry to calculate APR (NAR does not support)
Changes in APR - Under the proposed test, a fee or charge is included in the finance charge if it is: payable directly or indirectly by the consumer to whom credit is extended, and imposed directly or indirectly by the creditor as an incident to or a condition of the extension of credit.
RECORDKEEPING requires lenders to keep records of LE and CD in a standard electronic format; making it easier to monitor compliance. Should smaller lenders should be exempt?
EFFECTIVE DATE CFPB seeking comment on when this final rule should be effective. Because the final rule will provide important benefits to consumers, the Bureau seeks to make it effective as soon as possible. However, industry needs time.