New TILA‐RESPA rule consolidates disclosures

For more than 30 years, lenders have been required to provide four different disclosure forms to consumers when they apply for a loan and shortly before closing a mortgage loan. The information on these forms is repetitive and the language is inconsistent, making them confusing for consumers and burdensome for lenders and settlement agents to provide and explain.

That’s about to change. Dodd-Frank Act (DFA) authorized the consolidation of these four disclosures into two disclosures that are easier for banks to educate and for consumers to understand. Under the TILA-RESPA Rule, which went into effect on August 1, 2015*, the new consolidated forms use clear language to help consumers to locate key information about the transaction, such as interest rate, monthly payments and costs to close the loan so they can directly compare the total cost of different loan offers. 

  • The Good Faith Estimate (GFE) and the initial Truth-in-Lending disclosure (initial TIL) have been combined into a new form, the Loan Estimate (H-4), which must be provided to the consumer or placed in the mail no later than the third business day after an application is received. The Loan Estimate must be retained for three years after the start of the transaction.
  • The HUD-1 and final Truth-in-Lending disclosure have been combined into a new form, the Closing Disclosure (H-25), which must be provided to the consumer at least three business days before loan consummation. (Consummation is the time that a consumer becomes contractually obligated on the credit transaction, and may not necessarily coincide with the settlement or closing of the entire real estate transaction.)  The Closing Disclosure must be retained for five years after closing.

What does the TILA-RESPA Rule mean for financial institutions? Complete review and possible overhaul of processes and procedures, software updates, third party review to ensure compliance and employee training. Now is the time to conduct a gap analyses to identify areas for change and help develop and implement a plan. Financial institutions should review service providers such as a loan origination software vendor to ensure their software is up to date: the data standards to support the new Loan Estimate and Closing Disclosure forms will exist in MISMO version 3.3 and later.

While origination, processing, closing and post-closing departmental staff is most likely to be impacted by these Rule changes, banks should consider training all staff from front line to post production, quality control and anyone who monitors transaction compliance.  Training may also be required for other individuals that the bank’s third party vendors and business partners employ.

*The Rule is effective for most closed-end consumer mortgages that are applied for on or after August 1, 2015. It does not apply to home equity lines of credit (HELOCs), reverse mortgages or mortgages secured by a mobile home or by a dwelling that is not attached to real property (i.e., land). The final rule also does not apply to loans made by persons who are not considered “creditors,” because they make five or fewer mortgages in a year. For applications received prior to August 1, 2015, banks should follow the existing procedures for Regulations X and Z, and use the existing forms (Truth-in-Lending disclosures, GFE, HUD-1).

To review the entire TILA-RESPA Rule, click here.

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