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CFPB RESPA/TILA Rule Reference: 5.1-5.6
Last week, we introduced the new Loan Estimate form which will replace today’s Good Faith Estimate and Initial TIL disclosure and will be used for all closed-end credit transactions secured by real property (other than reverse mortgages) — essentially all residential home loans. It’s a required form for all “federally related” mortgage loans, which, again, includes most mortgages.
Beginning in May 2011, the Consumer Financial Protection Bureau (CFPB) set out to understand how changes to the layout and content of mortgage forms might create a more informed consumer, and they initiated an industry research project to gather opinions and to test new approaches for these documents.
In particular, the CFPB sought to reconcile and combine the Good Faith Estimate (GFE), required by RESPA, and the Initial Truth in Lending Disclosure (TIL), required by TILA, which was necessary because some of this paperwork had conflicting, or apparently conflicting, information. With an integrated Loan Estimate, the goal was to reduce that confusion by placing all estimated costs and an overview of consumer obligations into one place. Other goals of integrating the disclosures include facilitating more comparable loan shopping, and preventing surprises at the closing table.
The first page of the Loan Estimate includes general information about the loan such as the loan amount, interest rate, monthly principle and interest payment amounts, any prepayment penalties, and any balloon payment information. It also includes a projected payments table to help consumers understand how their monthly commitments might fluctuate with certain loan products. Finally, the first page also contains a section detailing expected costs at closing including cash needed to close.
The second page of the Loan Estimate takes a deeper dive into breaking down the costs of closing. Page two lists cost by line item and groups them according to the variance threshold that applies to a given particular charge.
The final page of the Loan Estimate focuses on miscellaneous information and disclosures. It includes items such as a comparisons table to give insight to the consumer about what the loan will cost him or her in real terms over time (Total Interest Percentage). This page also strives to minimize confusion by placing most of the federally mandated disclosures in one place, under Other Considerations.
Here’s the important part to remember: the disclosure form changes are not just cosmetic. The requirements around producing and delivering this paperwork will fundamentally change mortgage operations. The greatest impact of the new Loan Estimate is that it must be provided within three days of consumer application, and the definition of “application,” has been narrowly defined. Failure to meet these tight estimate deadlines could result in unprecedented fine amounts — for example, lenders whose delays are found to be caused “knowingly” could face civil penalties as high as $1 million per day. Even an unintentional TILA-RESPA violation could result in a $5,000 fine per day.
Because the penalties for noncompliance are higher than ever, and because the new rules ask lenders to generate work products faster than ever, the stakes couldn’t be greater for every member of the mortgage industry to develop a plan to manage the operational changes required by the new integrated disclosures, including the Loan Estimate Form.
So what’s your plan? How many of you have identified the steps your business will have to take to adapt to these changes? Regardless of how much thought you have or haven’t thrown at this up to now, let’s talk. Post a comment below and be part of the conversation!
In the next four days, we’ll discuss if the minimum required items of consumer information are actually enough information for the commitment of the new Loan Estimate, its timing and delivery, and more.
And don't forget that we have more details on the business impact and how technology helps you offset that impact in the TilaRespa Knowledge Center.
All information and views expressed or implied are provided without warranty and are only the opinion of Pavaso, Inc. Each participant should seek legal representation for legal interpretation of the ruling and the CFPB directly for final instruction and interpretation. The final rule can be found here.