Monday, December 22, 2014



Jonathan Foxx [*]

This second White Paper of a four-part series will introduce and treat the numerous features of the Closing Disclosure. In the first part, I discussed the mission of the RESPA/TILA Integration and the Loan Estimate. The third part will be a detailed analysis of the Loan Estimate. The fourth part will provide an in depth scrutiny of the Closing Disclosure.

Accompanying this article is a Closing Disclosure Table that may be used for certain itemized categories and action requirements. The table outlines the types of areas of interest in many of the routine requirements of the Closing Disclosure process. Rather than a before-and-after, comparative analysis, the Closing Disclosure Table provides the requirements with the compliance effective date of August 1, 2015.

In the other articles of the two remaining White Papers, I will provide charts, tables, form specimens, and annotations for applicable categories and action requirements relating to the RESPA-TILA Integration. In the third part of this four-part series on RESPA-TILA Integration, I will provide a deep dive, line by line outline of the Loan Estimate. The fourth part will provide a thorough analysis of the Closing Disclosure.

The full series, and accompanying charts, tables, and form specimens, first appeared in the October 2014 edition of National Mortgage Professional Magazine.

As I indicated in Part I, brand new disclosures have a compliance effective date of August 1, 2015 – a combined set, as in a new disclosure at the commencement of the loan origination and a new disclosure at its closing: these are, respectively, the Loan Estimate and the Closing Disclosure.[i]

The new set has been dubbed “RESPA-TILA Integration,” since the consolidation requirements reflect the mandates of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), which directed the Bureau to integrate the mortgage loan disclosures under TILA and RESPA Sections 4 and 5.[ii] For the balance of this article, I will refer to these provisions as the “RESPA-TILA Rule” or (“Rule”). The Bureau often refers to these provisions as the “TILA-RESPA Integrated Disclosure Rule.” Additionally, I will refer to the consolidated disclosures as “Integrated Disclosures.”

The Rule applies to most closed-end consumer mortgages. It does not apply to home equity lines of credit (HELOCs), reverse mortgages, or chattel-dwelling loans, such as mortgages secured by a mobile home or by a dwelling that is not attached to real property (i.e., land). The provisions also do not apply to loans made by persons who are not considered “creditors,” where such persons make five or fewer mortgages in a year. However, certain types of loans that are currently subject to TILA but not RESPA are subject to the Rule’s Integrated Disclosure requirements, including construction-only loans, loans secured by vacant land or by 25 or more acres, and credit extended to certain trusts for tax or estate planning purposes. So, creditors originating these types of mortgages must continue to use, as applicable, the Good Faith Estimate (“GFE”) GFE, Truth in Lending Disclosure (“TIL”), and HUD-1 Settlement Statement (“HUD-1”) disclosures required under current law.

There is also a partial exemption for certain transactions associated with housing assistance loan programs for low- and moderate-income consumers. These creditors are exempt from the requirement to provide the RESPA settlement cost booklet, GFE, HUD-1, and application servicing disclosure statement requirements, and, thus, exempt from the requirements to provide a Loan Estimate, Closing Disclosure, and Special Information Booklet for these loans.

I would also like to answer the question about whether or not creditors may use the Integrated Disclosure on loans not covered by the Rule but subject to RESPA and TILA. The answer is that using the Integrated Disclosures for such purposes is not prohibited on loans that are not covered by RESPA and TILA (i.e., mortgages associated with housing assistance loan programs for low- and moderate-income consumers). But a creditor cannot use the new Integrated Disclosure forms instead of the GFE, TIL and HUD-1 forms for transactions, such as reverse mortgages, that are covered by RESPA and TILA that require those disclosures.

Also, to repeat my statement from Part I, it should be emphasized that the Rule can be encapsulated, as follows:

The TILA-RESPA rule consolidates four existing disclosures required under TILA and RESPA for closed-end credit transactions secured by real property into two forms: a Loan Estimate that must be delivered or placed in the mail no later than the third business day after receiving the consumer’s application, and a Closing Disclosure that must be provided to the consumer at least three business days prior to consummation.[iii] (Emphases in original.)

The new Integrated Disclosures must be provided by a creditor or mortgage broker that receives an application from a consumer for a closed-end credit transaction secured by real property on or after August 1, 2015. But creditors will still be required to use the GFE, TIL, and HUD-1 forms for applications received prior to August 1, 2015.

Operationally speaking, as the applications received prior to August 1, 2015 are consummated, withdrawn, or cancelled, the use of the GFE, TIL, and HUD-1 forms will no longer be used for most mortgage loans.[iv]

Four General Requirements

If the loan requires a Loan Estimate, creditors must also provide the Closing Disclosure, to be received by the consumer no later than three business days before consummation of the loan.[v] [vi]
A practical way to view the Closing Disclosure is as a consolidation of the HUD-1 and the final TIL disclosure, containing additional elements. There are four rudimentary requirements of the Closing Disclosure.

Requirement 1: The Closing Disclosure generally must contain the actual terms and costs of the transaction.[vii]
·       Creditors may estimate disclosures using the best information reasonably available when the actual term or cost is not reasonably available to the creditor at the time the disclosure is made.
·       Creditors must act in good faith and use due diligence in obtaining the information.  The creditor normally may rely on the representations of other parties in obtaining the information, including, for example, the settlement agent.
·       Creditors are required to provide corrected disclosures containing the actual terms of the transaction at or before consummation.[viii]
Requirement 2: The Closing Disclosure must be in writing and contain the information prescribed in § 1026.38, the section of Regulation Z that outlines the content of disclosures for certain mortgage transactions (i.e., Closing Disclosure). Creditors must disclose only the specific information set forth in § 1026.38(a)-(s), as shown in the Bureau’s form (viz., Appendix H-25, the “Mortgage Loan Transaction Closing Disclosure—Model Form”).[ix] The specific information referred to covers a section-by-section analysis of the Closing Disclosure’s content requirements.

Requirement 3: If the actual terms or costs of the transaction change prior to consummation, creditors must provide a corrected disclosure that contains the actual terms of the transaction and complies with other requirements[x], such as the timing requirements, as well as the requirements for providing corrected disclosures due to subsequent changes.[xi]
Requirement 4: There is a new three-day waiting period; that is, if a creditor provides a corrected disclosure, it may also be required to provide the consumer with an additional three-business-day waiting period prior to consummation.[xii] (I will elaborate further on this feature below. See also the Table that accompanies this article.)

Page by Page

The Closing Disclosure is an extensive, five-page document with numerous fields, containing information disclosed in the Loan Estimate form, as well as additional information.

It may be categorically organized, as follows: