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:
·
Imposing fees on a consumer before the consumer
has received the Loan Estimate and indicated an intent to proceed with the
transaction;[xi]
·
Providing written estimates of terms or costs
specific to consumers before they receive the Loan Estimate without a written
statement informing the consumer that the terms and costs may change;[xii]
and
·
Requiring the submission of documents verifying
information related to the consumer’s application before providing the Loan
Estimate.[xiii]
In any event, the Bureau has made
clear that, for transactions where the application is received prior to August
1, 2015, creditors will still need to follow the current disclosure
requirements under Regulations X and Z, and use the existing forms (i.e., GFE, TIL,
and HUD-1).[xiv]
The Rule requires other
disclosures besides the Loan Estimate and Closing Disclosure. In addition to
the Integrated Disclosures, the Rule also changes some other post-consummation
disclosures provided to consumers by creditors and servicers; these are (1) the
Escrow Closing Notice[xv]
and (2) the mortgage servicing transfer and partial payment notices.[xvi]
Loan Estimate
We will now turn to an overview
of the Loan Estimate form, the form that integrates and replaces the existing GFE
and the initial TIL for the transactions subject to the Rule.
The creditor is generally
required to provide the Loan Estimate within three-business days of the receipt
of the consumer’s loan application. There are features to this timing
requirement that harken back to established timing requirements in the current
RESPA and TILA disclosure mandates.
Notice some of the similarities
between the Rule’s requirements and those of the current initial disclosures:
1.
The Loan Estimate must contain a good faith
estimate of credit costs and transaction terms.
2.
The Loan Estimate must be in writing and contain
the information prescribed in the form itself.
3.
Delivery must satisfy the timing and method of
delivery requirements.
4.
Creditors may only use revised or corrected Loan
Estimates when specific requirements are met.
Permit me to elucidate these five
items in a little more detail, pairing with the foregoing enumeration:
1.
Loan
Estimate vis-à-vis GFE costs and terms. If any information necessary for an
accurate disclosure is unknown, the creditor must make the disclosure based on
the best information reasonably available at the time the disclosure is
provided to the consumer, and use due diligence in obtaining the information.[xviii]
2.
Loan
Estimate vis-à-vis completing the form. The creditor must disclose only the
specific information set forth in § 1026.37, which provides the required content
of disclosures for certain mortgage transactions.[xix]
3.
Timing
and delivery method. The creditor is responsible for delivering the Loan Estimate
or placing it in the mail no later than the third business day after receiving
the application.[xx]
4.
Revised
or corrected Loan Estimates. Creditors generally may not issue revisions to
Loan Estimates because they later discover technical errors, miscalculations,
or underestimations of charges. Creditors are permitted to issue revised Loan
Estimates only in certain situations such as when changed circumstances result
in increased charges.[xxi]
5.
Mortgage
brokers providing Loan Estimates. If a mortgage broker receives a
consumer’s application, either the creditor or the mortgage broker may provide
the Loan Estimate.[xxii]
Page by Page
The Loan Estimate consists of
three pages. I will provide certain salient features in an outline, page by
page, in order to give an understanding of each page’s purpose. I will embolden
key terms throughout.
Page 1: Loan Estimate
Page 1 includes general
information, a Loan Terms table with
descriptions of applicable information about the loan, a Projected Payments table, a Costs
at Closing table, and a link for consumers to obtain more information about
loans secured by real property at a website maintained by the Bureau. It is
titled, of course, “Loan Estimate” and is accompanied by the statement “Save
this Loan Estimate to compare with your Closing Disclosure.”[xxiii]
At the top of Page 1 the creditor
places its name and address.[xxiv]
A logo or slogan is permitted, so long as the logo or slogan does not exceed
the space provided for that information.[xxv]
In the case of multiple creditors, only the name of the creditor completing the
Loan Estimate is permitted.[xxvi]
If a mortgage broker is completing the Loan Estimate, the creditor’s name
should be used, if known; and, if not known, the subject space is to be left
blank.[xxvii]
Page 2: Closing Cost Details
Page 2 breaks down into four main
categories, each with its own section. I will embolden key terms throughout.
2.
A Calculating
Cash to Close table, showing the consumer how the amount of cash needed at
closing is calculated.[xxix]
3.
An Adjustable
Payment (AP) Table, for transactions with adjustable monthly payments, with
relevant information about how the monthly payments will change.[xxx]
4.
An Adjustable
Interest Rate (AIR) Table, for transactions with adjustable interest rates,
with relevant information about how the interest rate will change.[xxxi]
Elaborating on these categories,
the costs associated with the mortgage transaction are broken down into two
general types: Loan Costs and Other Costs. Loan Costs are those costs
paid by the consumer to the creditor and third-party providers of services the
creditor requires to be obtained by the consumer during the origination of the
loan.[xxxii]
Other Costs include taxes, governmental recording fees, and certain
other payments involved in the real estate closing process.[xxxiii]
Further, items that are a
component of title insurance must include the introductory description of
Title.[xxxiv]
And, if state law requires additional disclosures, those additional disclosures
may be made on a document whose pages are separate from, and not presented as
part of, the Loan Estimate.[xxxv]
Page 3: Additional Information About The Loan
Page 3 contains Contact information, a Comparisons table, an Other Considerations table, and, if
desired, a Confirm Receipt line, essentially
a signature statement for the consumer to sign to acknowledge receipt.[xxxvi]
Exemptions to the Rule and
Prohibitions
Many rules have exemptions and
prohibitions and the RESPA-TILA Integration is no exception. For instance,
there are exceptions to the disclosure requirements for loans secured by a
timeshare. Although such loans are still subject to the Rule, the Bureau offers
“abbreviated timing, delivery, and disclosure obligations” for these loans when
consummation occurs within three business days of the application.
Specifically, creditors may forego a Loan Estimate and provide only the Closing
Disclosure.[xxxvii]
For the most part, the waiting periods and timing requirements applicable to
most loans subject to the Rule are inapplicable to loans secured by timeshare
interests. Creditors are required to ensure only that the consumer receives the
Closing Disclosure no later than consummation.[xxxviii]
The Rule continues the
significant prohibition limiting the fees that may be charged prior to
disclosure or application. A creditor or other person may not impose any fee on a consumer in connection with the
consumer’s application for a mortgage transaction until the consumer has
received the Loan Estimate and has indicated intent to proceed with the
transaction.[xxxix]
The restriction includes limits on application fees; appraisal fees; underwriting
fees; and, other fees imposed on the consumer. Continuing also is the one
exception for a bona fide and
reasonable fee for obtaining a consumer’s credit report.[xl]
We are often asked by a client, What
does it mean to impose a fee? A fee is imposed if the person requires a
consumer to provide a method for payment, even if the payment is not made at
that time.[xli]
There are various scenarios that the Bureau has given that apply. For instance,
a creditor or mortgage broker is imposing a fee if it requires the consumer to
provide a check to pay for a processing fee before the consumer receives the
Loan Estimate - even if the check is not to be cashed until after the Loan
Estimate is received and the consumer has indicated the intent to proceed; or, requiring
the consumer to provide a credit card number for a processing fee before the
consumer receives the Loan Estimate - even if the credit card will not be
charged until after the Loan Estimate is received and the consumer has
indicated an intent to proceed.[xlii]
The intent to proceed with the
loan transaction is activated when a consumer indicates intent to proceed with
the transaction, specifically, when the consumer communicates, in any manner,
that the consumer chooses to proceed after the Loan Estimate has been
delivered, unless a particular manner of communication is required by the
creditor,[xliii]
including oral communication in person immediately upon delivery of the Loan
Estimate; and oral communication over the phone, written communication via
email, or signing a pre-printed form after receipt of the Loan Estimate. Silence
on the part of the consumer does not constitute intent to proceed.[xliv]
Creditors are not permitted to
require additional verifying information other than the six pieces of
information that form an application from consumers before providing a Loan
Estimate. A creditor or other person may not condition providing the Loan
Estimate on a consumer submitting documents verifying information related to
the consumer’s mortgage loan application before providing the Loan Estimate.[xlv]
This can get tricky. Two possible scenarios are where a creditor asks for the
sale price and address of the property, but does not require the consumer to
provide a purchase and sale agreement to support the information the consumer
provides orally before the creditor provides the Loan Estimate; and, where a mortgage
broker asks for the names, account numbers, and balances of the consumer’s
checking and savings accounts, but the mortgage broker does not require the
consumer to provide bank statements or similar documentation to support the
information orally provided by the consumer before the creditor provides the
Loan Estimate.
In the second part of this
four-part series on RESPA-TILA Integration, I will provide a broad-based
understanding of the Closing Disclosure and also show some principal ways that
it is linked seamlessly to the Loan Estimate.
[i] Integrated Mortgage Disclosures Under the
Real Estate Settlement Procedures Act (Regulation X) and the Truth In Lending
Act (Regulation Z), 78 FR 7973, December 31, 2013
[ii]
Section 1032(f) of the Dodd-Frank Act mandated that the Bureau propose for
public comment rules and model disclosures that integrate the TILA and RESPA
disclosures by July 21, 2012
[iii]
Integrated Mortgage Disclosures under the
Real Estate Settlement Procedures Act (Regulation X) and the Truth In Lending
Act (Regulation Z), 12 CFR Parts 1024 and 1026, Proposed rule with request
for public comment, Bureau of Consumer Financial Protection, July 9, 2012
[iv]
Integrated Mortgage Disclosures under the Real Estate Settlement Procedures Act
(Regulation X) and the Truth In Lending Act (Regulation Z), 12 CFR Parts 1024
and 1026, Final rule; official interpretation, Bureau of Consumer Financial
Protection, November 20, 2013
[v]
Op. cit. 7
[vi]
TILA-RESPA Integrated Disclosure Rule,
Small Entity Compliance Guide, March 2014
[vii]
TILA-RESPA Integrated Disclosure Rule,
Small Entity Compliance Guide, September 2014, Note: the September guide
provides updates to the March guide with respect to information on where to
find additional resources on the rule; additional clarification on questions
relating to the Loan Estimate and the 7 day waiting period; and, additional
clarification on questions relating to Timing for Revisions to Loan Estimate.
In this article, I will use the March and September Guides, endeavoring to
provide text and citations using the Guides as primary sources.
[viii]
The complete rule and the Official Interpretations are available at: http://www.consumerfinance.gov/regulations/integrated-mortgage-disclosures-under-the-real-
estate-settlement-procedures-act-regulation-x-and-the-truth-in-lending-act-regulation-z/
[ix]
Op. cit. 7, 2.1
[x]
Idem. 3.1
[xi]
§ 1026.19(e)(2)(i)
[xii]
§ 1026.19(e)(2)(ii)
[xiii]
§ 1026.19(e)(2)(iii)
[xiv]
Op. cit. 7, 3.3
[xv]
§ 1026.20(e)
[xvi]
§ 1026.39(a) and (d)
[xvii]
Op. cit. 7, 5.1
[xviii]
§ 1026.19(e)(1)(i); Comment 19(e)(1)(i)-1)
[xix]
§ 1026.37(a) through (n), as shown in the Bureau’s form in appendix H-24. (§
1026.37(o))
[xx]
§ 1026.19(e)(1)(iii)
[xxi]
§ 1026.19(e)3)(iv)
[xxii]
§ 1026.19(e)(1)(ii)
[xxiii]
§ 1026.37(a)(1), (2)
[xxiv]
§ 1026.37(a)(3)
[xxv]
§ 1026.37(o)(5)(iii)
[xxvi]
Comment 37(a)(3)-1
[xxvii]
Comment 37(a)(3)- 2
[xxviii]
§ 1026.37(f) and (g)
[xxix]
§ 1026.37(h)
[xxx]
§ 1026.37(i)
[xxxi]
§ 1026.37(j)
[xxxii]
§ 1026.37(f)
[xxxiii]
§ 1026.37(g)
[xxxiv]
§ 1026.37(f)(2)(i) and (g)(4)(i)
[xxxv]
Comments 37(f)(6)-1 and 37(g)(8)-1
[xxxvi]
§ 1026.37(k), (l), (m), and (n)
[xxxvii]
§ 1026.19(e)(1)(iii)(C)) and (f)(1)(ii)(B); Comment 19(e)(1)(iii)-4 and Comment
19(f)(1)(ii)-3
[xxxviii]
§ 1026.19(f)(1)(ii)(B); Comment 19(f)(1)(iii)-3
[xxxix]
§ 1026.19(e)(2)(i)(A)
[xl]
§ 1026.19)(e)(2)(i)(B); Comment 19(e)(2)(i)(A)-1 through -5 and Comment
19(e)(2)(i)(B)-1
[xli]
Comment 19(e)(2)(i)(A)-5
[xlii]
Op. cit. 7, 13.4
[xliii]
§ 1026.19(e)(2)(i)(A)
[xliv]
Comment 19(e)(2)(i)(A)-2
[xlv]
§ 1026.19(e)(2)(iii); Comment 19(e)(2)(iii)- 1
