The New TILA-RESPA Integrated Disclosure Requirements

Farewell, HUD-1, we hardly knew ye. As of October 3rd, 2015, lenders will provide two integrated forms at specified intervals surrounding the closing date to comply with the provisions of both the Truth in Lending Act (“TILA”) and the Real Estate Settlement Procedures Act of 1974 (“RESPA”). The new forms are the result of provisions from Sections 1098 and 1100A of the Dodd-Frank Act meant to combine and simplify existing documents to make them easier for mortgagors to understand.

Family meeting real-estate agent for house investmentTILA (implemented through Regulation Z) and RESPA (implemented through Regulation X) both require specific disclosures to be made at the closing of a mortgage loan. RESPA requires that consumers receive a Good Faith Estimate (“GFE”) within three business days of applying for a mortgage loan. Within one business day before the settlement of the loan, the consumer has the right to request the Settlement Statement (HUD-1), with the document provided at closing. TILA also requires that mortgage lenders provide a disclosure of lending terms within three business days of receiving a mortgage loan application. These requirements have been fulfilled through separate disclosure forms created by two different agencies, thus leading to confusion between lenders and consumers at closing time, as the forms used inconsistent language. The HUD-1 is a settlement statement created by the Department of Housing and Urban Development to satisfy the requirements of RESPA when it was administered by that agency. The Federal Reserve Board enforced TILA.

Dodd-Frank changed these requirements by creating the Consumer Financial Protection Bureau (“CFPB”) and charging it with enforcing the provisions of both TILA and RESPA as well as creating integrated disclosures that effectuate the disclosure provisions of both laws through one set of forms, rather than two. To that end, the CFPB issued the Final Rule for the integrated disclosure requirements on November 20, 2013 and amendments to the Final Rule on February 19, 2015. This new TILA-RESPA Integrated Disclosure rule, otherwise also known as “Know Before You Owe,” created two required documents to replace the TILA and RESPA disclosures – a Loan Estimate that replaces the GFE and TILA disclosures at the time of application, and a Closing Disclosure that supplants the HUD-1 Settlement Statement.

As with the GFE and TILA disclosures, the Loan Estimate must be provided to consumers no later than three business days after they submit an application for a loan. The Loan Estimate form requires the loan amount and terms, projected payments, closing costs, the estimated cash needed to close and other considerations, such as whether the lender intends to transfer the servicing of the loan. The Closing Disclosure includes similar provisions, although it also includes details of the escrow account, a summary of the transaction and the contact information of the lender, the settlement agent, the mortgage broker, and the real estate brokers for both buyer and seller.

Possibly the biggest change for lenders and mortgage brokers is that the Closing Disclosure must be provided to the consumer at least three business days prior to the consummation of the transaction – the point where the consumer becomes contractually obligated to the creditor on the loan. This may be different than the actual closing date. This is a much more stringent requirement than the one-day prior to closing on consumer request requirement of the HUD-1, and can potentially delay closing, as last-minute changes the transaction may trigger a need for a revised Closing Disclosure with a new three-day waiting period. This can happen when there are increases in the APR, any additions of a prepayment penalty or the change of a loan product will trigger the need for a revised closing disclosure

MHagginMary Estes Haggin is a Member of McBrayer, McGinnis, Leslie & Kirkland, PLLC.  Ms. Haggin practices in virtually every aspect of real estate law, including title examination, title insurance, clearing title issues, deeds, settlement statements, preparation of loan documentation, contract negotiation and preparation, lease negotiation and preparation, and any and all other needs related to residential and commercial real estate matters.  She is located in the firm’s Lexington office and can be reached at  mehaggin@mmlk.com or at (859) 231-8780.

This article is intended as a summary of  federal and state law and does not constitute legal advice.

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Lenders Take Note: CFPB Issues Guide to Forms

Big changes are in store for real estate closings in 2015 (we first wrote about it here). Now, lenders have some guidance from the Consumer Financial Protection Bureau (“CFPB”) as to how complete forms that will become mandatory in August 2015.

For over thirty years, federal law has required lenders to provide two different disclosure forms (the Truth in Lending Statement and Good Faith Estimate) to consumers applying for a mortgage. The law also has generally required two different forms (a final Truth in Lending Statement and a HUD-1 settlement statement) at or shortly before closing on the loan. The forms were developed separately by two different federal agencies, pursuant to two separate acts: the Truth in Lending Act (“TILA”) and the Real Estate Settlement Procedures Act of 1974 (“RESPA”).

In an effort to simplify the closing process and help consumers become more informed of their options and obligations, the Consumer Financial Protection Bureau has launched the “Know Before You Owe” campaign – an initiative aimed at reforming the mortgage market. Beginning in August 2015, the two sets of forms issued to consumers will be reduced and replaced with a Loan Estimate Form and Closing Disclosure. These new forms use clear language and are designed to make it easier for the consumer to understand key information, such as the interest rate, monthly payments, and closing costs of the loan.

CFPB’s recently-issued Guide to Forms (available here) provides originators with step-by-step instructions for completing the Loan Estimate and the Closing Disclosure and addresses situations that are expected to arise frequently. The 96-page guide should be reviewed by anyone who routinely participates in the mortgage closing process. The guide specifically states that it may be helpful for settlement service providers, software providers, secondary market participants, and other firms that serve as business partners to creditors.

The Know Before You Owe rules bring about numerous technical and substantive changes to the mortgage closing process. Now is the time for lenders to prepare for the new era of closings by participating in training, reviewing their internal processes, and speaking with an attorney about their new compliance responsibilities.

J. Markham

Joshua J. Markham is a member at McBrayer, McGinnis, Leslie & Kirkland, PLLC in the Lexington, KY office. Mr. Markham practices in virtually every aspect of real estate law, including title examination, title insurance, clearing title issues, deeds, settlement statements, preparation of loan documentation, contract negotiation and preparation, lease negotiation and preparation, and any and all other needs related to residential and commercial real estate matters.He can be reached at jmarkham@mmlk.com or (859) 231-8780, ext. 149.

This article is intended as a summary of federal and state law activities and does not constitute legal advice.

 

A New Beginning for Closings

Currently, under federal law, within three business days after receiving an application, mortgage lenders must deliver two different disclosures to the applicants: an early Truth in Lending Statement and a Good Faith Estimate. At closing, two more disclosures are required: a final Truth in Lending Statement and a HUD-1 settlement statement. Starting Aug. 1, 2015, that long-established process will change. The forms will be reduced to two and simplified so that consumers will be able to mortgage shop more easily and understand their mortgage terms and costs more thoroughly.

The mortgage crisis that began in 2008 was precipitated by many consumers taking on loans they could not afford. Though the industry has rebounded from the crisis, the dire situation highlighted the need for consumers to better understand the true costs and risks of a mortgage. Under the Dodd-Frank Act, the Consumer Financial Protection Bureau (CFPB) received the power to create new rules for the Real Estate Settlement Procedures Act (RESPA) and for most of the Truth in Lending Act (TILA), which are the laws that require the existing disclosure forms. After two years of research and testing, the CFPB decided that the simplified, so-called “Know Before You Owe” mortgage forms are the best way to educate consumers.

Beginning in August 2015, consumers will be provided with The Loan Estimate form  within three days after submitting a loan application. It replaces the first Truth in Lending statement (long-considered ironically named for the confusion and lack of clarity it gave to consumers) and the Good Faith Estimate. Consumers can use this form to compare costs and features of various loan options. Three business days before the loan closing, consumers will receive a Closing Disclosure. This replaces the final Truth in Lending statement and HUD-1 settlement statement. For the first time, consumers can review the final loan terms and costs before they take a seat at the loan closing table.

This upcoming change is just a part of CFPB’s initiative to reform the mortgage markets. Hopefully, consumers will not be the only ones to benefit from the future modifications. Lenders and real estate attorneys should be optimistic about the potential to cut down on administrative costs and lessen the “surprises” that can ruin a closing. Those in the mortgage industry should review the forms carefully and take necessary implementation steps in the year ahead.

CRichardson

Christopher A. Richardson is an associate at McBrayer, McGinnis, Leslie & Kirkland, PLLC in the Louisville, KY office. Mr. Richardson concentrates primarily in real estate, where he is experienced in residential and commercial closing transactions, landlord/tenant relations, and mortgage lien enforcement/foreclosure. Mr. Richardson has closed innumerable secondary market and portfolio residential real estate transactions and his commercial practice ranges from short-term collateralized financing and construction lending to development revolving lines of credit. He can be reached at 502-327-5400 or crichardson@mmlk.com.

This article is intended as a summary of  federal and state law and does not constitute legal advice.

One Day Left to Share Your Comments about the Closing Process!

On January 3, the Consumer Financial Protection Bureau (“CFPB”) issued a notice and request for information in the Federal Register regarding the real estate closing process. Specifically, the CFPB is interested in knowing the consumer “pain points” associated with mortgage closing and how those pain points might be addressed by market innovations and technology.

The bureau wants input from consumers, mortgage lenders, housing attorneys, settlement closing agents, real estate agents, fair lending and consumer advocates – basically anyone and everyone with closing experience. This is your chance to share your perspective, whether good or bad, and help the closing process to be a smoother and more consumer friendly one for your future purchase, sale or refinance. The information collected during the comment period will be used to help the CFPB come up with future improvement initiatives. This is part of the larger “Know Before You Owe” project, which is intended to help consumers understand and navigate the home-buying process.

The CFPB has made it easy to share information by listing seventeen specific questions they would like responses to, including:

1. What are common problems or issues consumers face at closing? What parts of the closing process do consumers find confusing or overwhelming?

2. Are there specific parts of the closing process that borrowers find particularly helpful?

3. What do consumers remember about closing as related to the overall mortgage/home-buying process? What do consumers remember about closing?

4. How long does the closing process usually take? Do borrowers feel that the time at the closing table was an appropriate amount of time? Is it too long? Too short? Just right?

5. How empowered do consumers seem to feel at closing? Did they come to closing with questions? Did they review the forms beforehand? Did they know that they can request their documents in advance? Did they negotiate?

6. What, if anything, have you found helps consumers understand the terms of the loan?

7. What are some common errors you have seen at closing? How are these errors detected, if at all? Tell us about errors that were detected after closing.

8. What changes, diverging from what was originally presented at closing, often surprise consumers at closing? How do consumers react to changes at closing?

9. How, if at all, do consumers typically seek advice during closing? In person? By phone? Online?

10. Where and to whom do consumers turn for advice during closing? Whom do they typically trust?

11. What documents do borrowers usually remember seeing? What documents they remember signing?

12. What documents do consumers find particularly confusing?

13. What resources do borrowers use to define unfamiliar terms of the loan?

14. What, if anything, would you change about the closing process to make it a better experience for consumers?

15. What questions should consumers ask at closing? What are the most important pieces of information/documents for them to review?

16. What is the single most important question a consumer should ask at closing?

17. What is the single most important thing a consumer should do before coming to the closing table?

You can submit answers to these questions, along with your own additional comments, online by visiting this webpage:  http://www.regulations.gov. But time is of the essence! The comment period closes tomorrow, February 7th. Hurry and let your opinions be known!

BMacGregor

 Brittany C. MacGregor is an associate attorney practicing in the Lexington office of McBrayer, McGinnis, Leslie & Kirkland, PLLC. She is a graduate of Transylvania University and the University of Kentucky College of Law. Ms. MacGregor’s practice focuses on real estate law, including title examination, title insurance, clearing title issues, deeds, settlement statements, preparation of loan documentation, contract negotiation and preparation, and lease negotiation and preparation. She may be reached at bmacgregor@mmlk.com or at (859) 231-8780.