On March 30, the Consumer Financial Protection Bureau published a revised consumer publication related to mortgage loans. This publication, a replacement of the “Settlement Cost Booklet” or “Special Information Booklet,” is a widely anticipated companion to the Truth in Lending Act and Real Estate Settlement Procedures Act, or TILA-RESPA, Integrated Disclosure (collectively referred to as TRID) requirements.
1. What is it?
Originally designed by the department of Housing and Urban Development to meet the requirements of Regulation X, the Settlement Cost Booklet was an informational booklet conceived to help borrowers become familiar with the home-buying and mortgage process so that they make informed decisions and avoid common pitfalls. It includes topics such as steps in buying a home, mortgage process, fees, disclosures, understanding Good Faith Estimate, or GFE, and HUD-1 requirements, and other information. Lenders are required to provide a special information booklet as per §1024.6 Regulation X, which implements RESPA.
2. What has changed?
The CFPB has redesigned the booklet to create a toolkit that will provide borrowers with information critical to their understanding of the process of shopping for a mortgage and buying a home. The booklet is being completely redesigned for the consumer to more thoroughly explain the process in easy-to-understand language. The requirement to provide the revised booklet is found within the new TRID requirements of Regulation Z, at §1026.19(g). It will be required for consumer purpose loans secured by real property. Lenders will want to start planning for the documents now. They will be available for consumers in electronic and printed versions. The CFPB has also created an interactive, electronic version with fillable text fields and interactive checkboxes, so clients can save and print their progress.
3. When do you need to use the new toolkit?
As of Aug. 1, 2015, lenders will be required to provide the revised version of the booklet along with the Loan Estimate (one of the updated TRID documents) for closed end mortgage loans where the loan purpose is to purchase a 1-4 family residential property. In other words, send the booklet for loan applications when the following conditions are met:
· 1-4 family residence types and includes condos, townhomes;
· Purpose of the loan is purchase; and
· Closed-end loan types (Open-ended loans have a separate booklet version.)
4. Timing for Delivery: A Three Business Day Rule.
It is critical for lenders to remember that the regulation requires delivery of the booklet not later than three business days following receipt of the loan application. If lenders deny the loan application before the end of the three-business-day period, then they need not provide the booklet to the borrower. Business day means a day on which your offices are open to the public for carrying on substantially all of its business functions.
5. How to use the new toolkit to your advantage?
While the release of the toolkit presents lenders with new obligations to fulfill for their clients in order to remain compliant, lenders should also view this as a great opportunity to address information gaps that may exist within their own organizations. Lenders have been known to use the settlement booklet for their own internal trainings, leveraging content to educate not only their customers, but also their own staff to ensure everyone on the front lines of the lending process is well versed in information critical to client interactions. The new toolkit version comes at a time when lenders are already likely desperate for materials that can help them in the training process as they prepare for the approaching Aug. 1, 2015 TRID implementation date. The new version provides clear direction for much of the information lenders will need to train their own internal staff. So, while the toolkit can be seen as creating an additional burden on lenders, good planning will allow lenders to capitalize on a great training opportunity.
6. Where do I get it?
The revised consumer publication is available for purchase through your mortgage document vendor or the U.S. Government Printing Office.The CFPB has made two sizes of the documents available: a letter size version and a version designed to fit a typical business envelope. Lenders can add their name and contact information to the booklet to help market the lender’s brand. Lenders will want to work with their vendors to ensure print quantities are available in stock in time to meet the required implementation date of Aug. 1, 2015.
With the release of this booklet, lenders will see the first examples of how the extensive consumer research the CFPB conducted related to the overall TRID requirements can really prove beneficial for helping better educate consumers. The new requirement joins the long list of changes lenders must consider in adjusting operational workflows stay in compliance. However, prudent financial institutions will capitalize on the new consumer-friendly language and demonstrate the ability to get past a focus on operational burdens. This is a clear opportunity to leverage the changes as enhanced educational tools for their own internal improvements in a tangible demonstration of organizations adapting as necessary through regulatory change so they can grow safely and profitably.