New TILA-RESPA Disclosure Rules Simplify and Clarify

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Photo credit: Got Credit

Lenders must comply by October 3

Updated June 24, 2015. The Consumer Financial Protection Bureau (CFPB) issued a new rule that combines mortgage disclosures previously established by the Truth-in-Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA) into a single rule effective October 3, 2015. To help lenders navigate the TILA-RESPA Integrated Disclosures (TRID) Rules, the Mortgage Bankers Association (MBA) just released a resource guide written by two of the industry’s top compliance experts, Richard Horn and Ballard Spahr.

Jeffrey Schummer, MBA’s Vice President of Education Development says, “TRID is 1,888 pages in length and affects every business functioning in the single-family mortgage market. Compliance with this new rule requires major systems and operational changes. As such, MBA’s TRID Resource Guide will help companies to ensure compliance by the August 1st deadline.”

What is it?

The TRID Rule combines four existing disclosures that are required under the Truth-in-Lending-Act (TILA) and the Real Estate Settlement Procedures Act (RESPA) for most real property-secured closed-end credit transactions. To help improve consumer clarity and promote industry compliance with TILA and RESPA initial and final disclosures, the Good Faith Estimate (GFE) and initial Truth-in-Lending Disclosure will be replaced by the three-page Loan Estimate. The HUD-1 Settlement Statement and final Truth-in-Lending Disclosure is being replaced by the five-page Closing Disclosure.

Who will be affected?

The Final Rule applies to most closed-end consumer mortgage loans that are secured by a one to four unit dwelling attached to real property. The Final Rule does not apply to home-equity lines of credit, reverse mortgage loans, mortgage loans secured by a mobile home or by a dwelling not attached to real property, such as land, or to creditors that write five or fewer mortgages a year. A partial exemption will be given to certain junior liens which are associated with housing assistance loans for low/moderate income consumers. Unlike many of the CFPB mortgage rules, the Final Rule does not include an exception for small creditors.

What will change?

Under TRID, changes will be made to the following processes:

• The Loan Estimate must be placed in the mail or delivered no later than the third business day after receiving the application and no later than the seventh business day before consummation. The consumer must receive the Closing Disclosure at least three business days prior to consummation.

• Lenders must keep copies of the Loan Estimate for three years after consummation, and retain copies of the Closing Disclosure, in addition to all Closing Disclosure-related documents, for five years after consummation.

The Final Rule also includes several other substantive changes and additions to TILA and RESPA, including,

• Defining what constitutes an application: The removal of the seventh catch-all item.

• Date changes that lenders must provide the Loan Estimate (currently the GFE). As a result of a Change of Circumstance, the time frames are different for the delivery of the initial Loan Estimate and revised Loan Estimate.

• Variances, formerly known as tolerances, are changing and this will force more fees into the 0% and 10% categories. Lenders may have greater responsibility imposed on them for the amount their partners charge.

• The Loan Estimate will not have number line items as found on the GFE, this will leave three main categories under Loan Costs: Origination Charges, Services That You Cannot Shop For, and Services You Can Shop For. Under Other Costs, there will be separate categories such as Taxes and Other Government Fees, Prepaids, Initial Escrow Payment at Closing, and Other.

• All Loan Estimate fees will be rounded to the nearest dollar.

• Borrowers must receive the Closing Disclosure at least three business days before consummation. The loan product changes if the Annual Percentage Rate (APR) becomes “inaccurate,” or a prepayment penalty is added, a new Closing Disclosure must be provided and an additional three-business-day waiting period after receipt of the new Closing Disclosure is required before the loan can close.

• The HUD-1 Settlement Statement replacement, the Closing Disclosure will have different line items from its predecessor. The line items will be associated with three general categories under Loan Costs: Origination Charges, Services Borrower Did Not Shop For, and Services Borrower Did Shop For. Other Costs includes separate categories and line items:

Taxes and Other Government Fees, Prepaids, Initial Escrow Payment at Closing, and Other.

• The Closing Disclosure will also contain additional new disclosures required by the Dodd-Frank Act and a detailed accounting of the settlement transaction.

• Similar to HUD-1s, lenders will be responsible for preparing the Closing Disclosure, which is usually prepared by a settlement agent. Settlement agents may still be used by lenders in providing the Closing Disclosure if the settlement agents are compliant with the Final Rule’s requirements for the Closing Disclosure.

How can you prepare?

You will need to update policies and procedures, in addition to changing the way you track and modify disclosures. Pre-application estimates, compliance tests and reporting requirements will be impacted by the rule. Here are some things you can do to get ready:

• Identify affected products, departments and staff as well as the business-process, operational, and technology changes that will be necessary for compliance.

• Identify the impact these changes will have on key service providers or business partners, and what training will be needed.




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