The CFPB has issued a final rule that will require lenders to use new disclosure forms that replace the home mortgage loan application and loan closing disclosures required under the Truth in Lending Act (“TILA”) and the Real Estate Settlement Procedures Act (“RESPA”). The final rule released on November 20 amends Regulation X, which implements RESPA, and Regulation Z, which implements TILA, to require lenders to use the new disclosure forms for most closed-end consumer mortgages. The final rule does not apply to home equity lines of credit, reverse mortgages, or mortgages secured by a mobile home or by a dwelling that is not attached to real property. The final rule requires a lender to deliver a Loan Estimate form to a consumer no later than 3 business days after the consumer applies for a home mortgage loan. The Loan Estimate form replaces the Good Faith Estimate form originally designed by the Department of Housing and Urban Development (“HUD”) under RESPA and the early Truth in Lending disclosure statement originally designed by the Federal Reserve under TILA. The lender must deliver a Closing Disclosure form so that the consumer receives it at least 3 business days before the consumer closes on the loan. The Closing Disclosure form replaces the HUD-1, which was originally designed by HUD under RESPA, and the revised Truth in Lending disclosure statement, which was originally designed by the Federal Reserve under TILA. Both of the new forms contain new disclosures required by the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”). The final rule becomes effective, and the use of the new forms becomes mandatory, on August 1, 2015.
Nutter Notes: The Dodd-Frank Act transferred responsibility for administering TILA and RESPA from the Federal Reserve and HUD, respectively, to the CFPB, and directed the CFPB to integrate the mortgage loan disclosures required to be delivered to consumers under TILA and RESPA. The final rule and the new mortgage disclosure forms reconcile the differences between the existing forms and combine other required disclosures, such as the appraisal notice under the Equal Credit Opportunity Act and the servicing application disclosure under RESPA. The final rule also provides explanations of how the forms should be filled out and used. Under the final rule, a mortgage broker may provide the Loan Estimate form to a consumer upon receipt of an application. However, even if the mortgage broker provides the Loan Estimate, the lender will remain responsible for complying with all requirements concerning the disclosure. The final rule also allows lenders and others to provide consumers with written loan estimates prior to application, provided that any such written estimates contain a disclaimer to prevent confusion with the Loan Estimate form. This disclaimer is required for advertisements. The final rule will allow lenders to use a settlement agent to provide the Closing Disclosure form on behalf of the lender. Under current law, settlement agents are required to provide the HUD-1 under RESPA, but lenders are required to provide the revised Truth in Lending disclosure statement. Finally, it is noteworthy that the CFPB has determined not to redefine the way the Annual Percentage Rate (“APR”) is calculated as it had originally proposed, at least for now.