For more than 30 years, Federal Law has required lenders to provide two different disclosure forms at Real Estate closings to consumers applying for a mortgage. In practice, these two forms end up overlapping and are inconsistent. Consumers are often confused and lenders and settlement agents find the forms burdensome to provide and explain.
In response, the Dodd-Frank Wall Street Reform and Consumer Protection Act directed the Consumer Financial Protection Bureau to integrate the mortgage loan disclosures under the Truth In Lending Act (TILA) and the Real Estate Settlement Procedures Act of 1974 (RESPA).
After performing a quantitative study, the bureau found that the integrated disclosure proposal had on average a statistically significant better performance than the current disclosures under TILA and RESPA.
The TILA-RESPA was set to become effective August 1, 2015, but an extension has been issued to initiate compliance into October of 2015.
What are some of the changes parties will experience as a result of this new procedure?
1. The Loan Estimate:
a. The Good Faith Estimate (GFE) and the Initial Truth in Lending Disclosure (initial TIL) have been combined into one new form, the Loan Estimate.
b. The New Loan estimate form is designed to provide disclosures that will be helpful to consumers in understanding the key features, costs, and risks of the mortgage loan for which they are applying, and must be provided to consumers no later than the third business day after they submit the loan application
c. The loan estimate bust be delivered or placed in the mail no later than the 7th business day before consummation of the transaction.
2. The Closing Disclosure:
a. The HUD-1 and final Truth-in-Lending disclosure (final TIL and, together with the initial TIL, the Truth-in-Lending forms) have been combined into another new form, the Closing Disclosure, which is designed to provide disclosures that will be helpful to consumers in understanding all of the costs of the transaction. This form must be provided to consumers at least three business days before consummation of the loan.
3. The forms use clear language and design to make it easier for consumers to locate key information.
4. The buyers and sellers will each have their own respective disclosure form, thus ridding the use of the combined buyer and seller HUD-1 statement form.
5. The rule also changes some other post-consummation disclosures provided to consumers by creditors and servicers:
a. The Escrow Closing Notice;
b. Mortgage servicing transfer; and
c. Partial Payment Notices.
Even though on the negative, this new procedure requires all professionals to change how they handle their respective real estate transactions, it may have a lasting positive impact. The loan estimate combined with the disclosure forms might transform the closing table from a nightmare into a more manageable and less stressful customer experience.
Lenders may become extra careful and hesitant after October 1 while providing mortgages so as not to be out of compliance with the new rules. This will most likely translate to longer timelines to get a mortgage and delayed closing dates.
If you are a professional impacted by this new procedure, it is strongly urged to prepare yourself, your clients and your business so that your procedures are in compliance. The accuracy and delivery of these new forms will be critical to ensure the mortgage process is not derailed or delayed and your clients have a smooth purchase process and you can continue to provide excellent customer service.