RESPA/TILA Integration – Part I:
Overview and Loan Estimate
Jonathan Foxx [*]
This first of a four-part series
will introduce the RESPA/TILA Integration and treat the numerous features of
the Loan Estimate. In the second
part of the series, I will detail the features of the Closing Disclosure. 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 Loan Estimate 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 Loan
Estimate process. In reviewing the table, notice how many of these categories
in some respects reflect the pre-August 2015 disclosure process. Rather than a before-and-after,
comparative analysis, the Loan Estimate Table provides the requirements of the post-August
2015 Rule itself.
Two Download Locations
In the other articles of this
four-part series, I will provide charts, tables, form specimens, and
annotations for applicable categories and action requirements relating to the RESPA-TILA
Integration. The full series, and accompanying charts, tables, and form
specimens, will also appear in National Mortgage Professional Magazine, commencing
October 2014.
Discussion
Let’s admit at the outset that having
to explain to loan applicants the fees and boxes and pages of the Good Faith
Estimate (GFE) is not for the faint of heart. The Truth in Lending Disclosure
(TIL) remains a conundrum without peer: difficult to explain to a consumer in
just a few words; inscrutable even to loan officers; and, blisteringly
enigmatic often even to lenders. Both disclosures are somewhat archaic,
examples of good intentions gone to the shadowy realm of Unintended
Consequences.
Notwithstanding the foregoing
debacle, there is the infamous HUD-1 Settlement Statement (HUD-1), infamous for
its myriad codes, infamous for codes that should correlate or sometimes seem
not to correlate to the GFE itself, infamous for mapping challenges to the loan
origination system, and infamous for irksome consternation about where, what,
and how to show certain fees!
A consumer’s distrust of the
lender seems to increase with the duration of the explanation provided by the
mortgage loan originator. If it takes more than a sentence or two to explain a
disclosure’s contents, many consumers are already hesitating, wondering if
there’s something they’re not being told! So, is there a way to provide a new
kind of consumer disclosure that replaces the overly-encrusted, superannuated, periodically
reconditioned, creaky, decades’ old twosome and settlement documents that have
dominated the origination of residential mortgage loans for an entire
generation of mortgage loan originators?
Into this maelstrom of implacable
confusion steps the Consumer Financial Protection Bureau (“CFPB” or “Bureau”). The
debate as to whether we need to replace the GFE, TIL, and settlement
disclosures, into an overall, encompassing disclosure, is over and done. Behind
us now are the many analyses, heat maps, comment periods, public outreach, focus
groups, committee reviews, Interagency evaluations, extensive consumer and
industry research, association position papers, quantitative studies, speeches,
public relations, announcements, and presentations. Before us unfolds on August
1, 2015 a brand new set of disclosures – a combined set, as in new disclosure
at the commencement of the loan origination and new disclosure at its closing –
the former to be called Loan Estimate
and the latter to be called 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”). 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 GFE, TIL,
and 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.
The RESPA/TILA Rule
I am sure that the question will
be asked whether creditors may use the Integrated Disclosure on loans not
covered by the Rule but subject to RESPA and TILA. The short 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). A creditor
cannot use the new Integrated Disclosure forms instead of the GFE, TIL and
HUD-1 forms for transactions that are covered by RESPA and TILA that require
those disclosures (i.e., reverse mortgages).
With its usual flair for brevity,
the Bureau’s proposal in July 2012 is a mere 1,099 pages.[iii]
In November 2013, the final rule was issued, reaching the gargantuan
proportions of 1,888 pages.[iv]
Some of the seemingly boundless verbiage has thankfully been distilled to a 91
page guide, entitled TILA-RESPA
Integrated Disclosure Rule, Small Entity Compliance Guide (“Guide”).[v]
The most recent update to the Guide was issued in September 2014. The Guide touches
on many features of the Rule and the implementation of the new disclosures;
however, a thorough reading of the final rule is needed in order to comprehend
the scope, application, and breadth of the Rule in effectuating its provisions.
[vi]
[vii]
[viii]
Much of the Rule can be
encapsulated in a single sentence, leaving aside all the details, as set forth
by the Bureau:
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.[ix]
(Emphases in original)
As in all consumer disclosure
regulations, the compliance effective date and the operational recognition of
that date are critical timing points. 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.[x]
But from a process perspective,
this timing can get complicated quickly. Various restrictions take effect on
the calendar date August 1, 2015, regardless of whether an application has been
received on that date. For instance, take note of these restrictions:
