Business Law Letter: RESPA-TILA Integrated Disclosure Rule

10.03.15

The Consumer Financial Protection Bureau’s final RESPA-TILA Integrated Disclosure Rule went into effect October 3, 2015. In the wake of the Great Recession, the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) was passed and directed the CFPB to combine certain disclosures that consumers receive in applying for and closing on a residential closed-end mortgage loan.[1] This rule combines the mortgage disclosures consumers receive under the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA), and mandates the use of two disclosures: the three-page Loan Estimate and the five-page Closing Disclosure. In addition, the final rule requires that these two disclosures be received by the borrower at specific times prior to closing.

Loan Estimate

The Loan Estimate replaces both the Good Faith Effort (GFE) under RESPA and the Truth in Lending Disclosure made under TILA. The Loan Estimate is a standard form that informs the consumer of the features, costs, terms and risks associated with the mortgage loan for which they are applying, and additional closing disclosures. Until the Loan Estimate is provided and the consumer indicates the intent to proceed with the transaction, a creditor cannot impose any fee other than a bona fide and reasonable credit report fee. The Loan Estimate must be delivered or placed in the mail not later than the third business day after the creditor receives the consumer’s application.

A consumer’s application, determined at the time the creditor receives the information, is defined as the submission of all of the following: (1) the consumer’s name; (2) the consumer’s income; (3) the consumer’s social security number to obtain a credit report; (4) the property address; (5) an estimate of the value of the property; and (6) the mortgage loan amount sought. Creditors are required to exercise due diligence in obtaining the information necessary to complete a Loan Estimate. The creditor is under an obligation to provide the consumer a Loan Estimate within three days of receiving a complete application.

Closing Disclosure

The Closing Disclosure replaces both the HUD-1 and the final Truth in Lending Disclosure. The Closing Disclosure provides the actual terms of the loan, the costs of the loan, other settlement costs, and additional closing disclosures. Creditors are required to provide the consumer with the Closing Disclosure no later than three business days before the closing. If changes occur between the time in which the consumer receives the Closing Disclosure and closing, a creditor generally must provide the consumer with an updated Closing Disclosure with an additional three-business-day waiting period. Changes that require an updated Closing Disclosure and additional time are: (1) a change to the APR greater than 1/8 of a percent (or 1/4 of a percent for loans with multiple advances or irregular payment periods); (2) changes to the loan product; or (3) the addition of a prepayment penalty. If the changes to the loan are less significant than those just listed, an updated Closing Disclosure can be provided without the need for an additional three-day waiting period.

Restrictions on Increases in the Closing Costs

Unless an exception applies, creditors are not permitted to increase (1) charges for services provided by an affiliate of the creditor; (2) a creditor’s or loan originator’s charges; and (3) charges for services for which the creditor or loan originator does not permit the consumer to choose the provider. The exceptions contemplate:

  1. a change in circumstances, such as an extraordinary event beyond control of any interested party or other unexpected event specific to the consumer’s transaction;
  2. a request by the consumer for a change;
  3. information provided by the consumer and relied upon by the creditor was inaccurate or had become inaccurate;
  4. consumer chooses a services provider that was not identified by the creditor; or
  5. the Loan Estimate expires.

The RESPA-TILA Integrated Disclosure’s effective date of October 3, 2015 is prospective. Creditors are still required to use the GFE, HUD-1, and Truth in Lending Disclosure forms for applications received prior to the effective date.

This Business Alert is being sent to provide a brief overview of the new rules and regulations stemming from the Dodd-Frank Act and is not meant as an inclusive summary of all the changes.

By Anthony Liolios, aliolios@dsda.com 

[1] This rule applies to most closed-end consumer mortgages; however, it does not apply to home-equity lines of credit, reverse mortgages, mortgages secured by mobile homes, or creditors that make five or fewer mortgages a year. 

©2015 Doerner, Saunders, Daniel & Anderson, LLP.  The Business Law Letter is a newsletter providing items of interest in various areas pertaining to business organizations.  While the Letter may alert you to potential problems or changes in the law, legal advice concerning specific problems can only be given by an attorney after careful consideration of the facts unique to a given situation.  Inquiries concerning the Letter or its contents should be directed to one of its editors, H. Wayne CooperLawrence T. Chambers, Jr.William F. RiggsDavid J. Looby or D. Benham Kirk

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