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Implementation Ahead for Key Mortgage Disclosures

CFPB issuing final rule

Nov. 20, 2013

By Mortgage Daily staff

A final rule is being issued on a pair of key forms that will be required at the outset of the home lending process and just prior to a mortgage closing. The new forms, which replace two sometimes conflicting disclosures, go into effect in less than two years.

The Dodd-Frank Wall Street Reform and Consumer Protection Act mandated that disclosures required under the Truth-in-Lending Act and the Real Estate Settlement Procedures Act be combined.

The authority to enforce TILA and RESPA was transferred to the Consumer Financial Protection Bureau in July 2011.

Prior to the transfer, the Federal Reserve Board of Governors had TILA enforcement authority, while the Department of Housing and Urban Development was responsible for RESPA. But the two government agencies didn't necessarily coordinate TILA and RESPA disclosures -- and the two forms sometimes conflicted.

Frustrated with the disparity, many in the mortgage industry had long been calling for the two disclosures to be reconciled.

"For more than 30 years, federal law has generally required that within three business days after receiving a mortgage application, mortgage lenders must deliver two different, overlapping disclosures to consumers," a CFPB notice Wednesday said. "At the closing stage, federal law again generally requires two forms.

"All of these forms contain duplicative and sometimes confusing information."

The CFPB proposed in May 2011 two different disclosures formats and sought public feedback.

In July 2012, the CFPB issued a proposed rule to modify Regulation Z, which implements TILA, and Regulation X, which implements RESPA. The rule included a Loan Estimate to replace the Good Faith Estimate and the early TILA disclosure and a Closing Disclosure to replace the HUD-1 settlement statement.

The new forms were originally scheduled to become effective in January 2013. But after much resistance to the timeline, the CFPB in November 2012 delayed the deadline to allow "a more seamless integration with other mortgage disclosures."

On Wednesday, the regulator said it is issuing a final rule that becomes effective on Aug. 1, 2015. It is " already working with industry and consumers toward effective implementation."

Mortgage Bankers Association President and Chief Executive Officer David Stevens praised the CFPB for allowing adequate time for implementation.

"We are pleased that they recognized the enormity of change being implemented in the mortgage systems on Jan. 10," Steven said in a statement Wednesday. "The August 2015 deadline is a clear recognition by the CFPB of how significant the change is and the time needed to implement this new rule."

The new forms, which are being presented as part of the CFPB's "Know Before You Owe" effort, are intended to enable prospective borrowers to make better informed decisions.

The Loan Estimate must be provided to consumers within three business days of submitting a loan application. It is designed to help would-be borrowers compare the costs and features of different loans.

The Closing Disclosure must be provided to prospective borrowers at least three business days prior to a loan closing.

More than two years of "extensive research, testing, and review" went into the new forms, according to the CFPB. The bureau said that consumers with differing levels of experience were better able to understand the new forms than the old ones. This includes a better understanding of risk factors, short- and long-term costs and monthly payments.

The regulator said that the new forms improved by 42 percent consumers' ability to comparison shop. In addition, bait-and-switch tactics are curtailed as a result of the easy comparison of estimated and final loan terms.

The final rule limits the circumstances in which costs for settlement services can be raised from the Loan Estimate.

"We have to yet to fully review all aspects of this rule and will provide a deeper analysis once we review the specific details," MBA's Stevens said.


Related:
CFPB Delays Mandatory Deadlines for Disclosures

An upcoming deadline for a new set of mortgage disclosures has been extended. The delay was in response to industry comments "overwhelmingly" in support of extra time.

final rule | Loan EstimateClosing Disclosure

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