Integrated Disclosures : A Crash Course

A recent study by Nationwide Economics shows the housing market is stronger than it has been in the past 14 years. Confidence in the economy continues to improve as more

people are able to find work. As people began feeling more positive about their financial future, they are returning to the pursuit of one of their most significant life-long goals: home ownership. More than half of home buyers each month are first-time buyers. Part of the Consumer Financial Protection Bureau's (CRPB) ongoing effort to protect the public and help them realize their financial goals is the implementation of the TILA-RESPA Integrated Disclosure. It is part of your responsibility as an adviser and real estate agent to clearly explain the new rule in an easy-to-understand manner.

Purpose of the TILA-RESPA Integrated Disclosure rule

The Consumer Protection Act directed the CFPB to establish forms that would combine disclosures for people when they apply for a mortgage. This covers forms required by the Truth in Lending Act, also known as Regulation Z, and the Real Estate Procedures Act, known as Regulation X. In the past, many home buyers were confused and overwhelmed by the amount of paperwork quickly forced on them by unethical people in the lending industry. This led to predatory lending practices and many people with mortgages on their homes that they could not afford to repay. It was a key contributor to the housing market collapse. The TILA-RESPA Integrated Disclosure Rule is meant to simplify and improve the method of supplying information to home buyers. Providing information to borrowers about their rights and responsibilities in clear language empowers borrowers and gives them more opportunity to make informed decisions they will feel good about for many years.

What the rule does

A new form called a Loan Estimate replaces the form required by the Truth-in-Lending Act (TILA) and the Good Faith Estimate required by RESPA. If the borrower is working with a mortgage broker, the actual lender is still responsible for making sure the borrower receives their Loan Estimate. The Integrated Disclosures rule applies to practically all closed-end consumer mortgages, but not to reverse mortgages, loans secured by a mobile home or other residence that is not attached to real property, equity lines of credit, or loans made by creditors who make five or less mortgages a year. With the exception of charging for the cost of a credit check, lenders can not charge borrowers any fees until the borrower has received their Loan Estimate and made the decision to proceed with the loan process.  

The Loan Estimate

Lenders are required to provide consumers with a Loan Estimate when that consumer has given the lender the following information: The consumer's name, social security number, and income. The property address, estimate of value for the property, and the loan amount the borrower seeks. The TILA-RESPA Integrated Disclosures Rule removes other information, called "other relevant information" that was allowed under RESPA. Lenders may collect any additional information needed for extending credit after they have provided the Loan Estimate upon receiving the initial six pieces of consumer information.

The Closing Disclosure

This new document replaces the final document required by the TILA and the HUD-1 settlement statement that has always been required by RESPA. The new Closing Disclosure is five pages and provides consumers with the actual terms of their purchase transaction. The consumer has three days to review the Closing Disclosure before the loan is finalized. If the Closing Disclosure is mailed to the borrower instead of hand-delivered, the three day review period begins three days after it was mailed. The Closing Disclosure must reflect all actual cost of the transaction. If there are any changes in amounts prior to or after the closing, the lender must provide the borrower with a corrected Closing Disclosure with the actual amounts. All amounts must be documented in writing and not delivered verbally.

Countdown to Compliance - What you need to know for Aug. 1

Real estate is a people business. Some of the best agents are not technologically inclined and they have to make an ongoing effort to ensure they properly dot the i's and cross the necessary t's of paperwork. It is fine if your natural talent is face-to-face interaction with your clients or negotiating effectively. But to best represent your clients, you must also understand the new mortgage disclosure forms and be able to explain them to your clients.

Director of the Consumer Financial Protection Bureau (CFPB) Richard Cordray is quick to point out that the new rule was approved 21 months in advance of the August 1, 2015 implementation day. Nobody in the industry can say they were not given time to prepare. Here are a few things all real estate agents need to know.

The Consumer Financial Protection Bureau

Congress formed the CFPB in response to the many people who lost their homes during the 2008 market collapse. The main purpose of the CFPB is to protect the American public from unfair and deceptive practices like the predatory lending that contributed heavily to the housing market bubble of 2006 and the subsequent credit crisis that occurred when that bubble burst. In an effort to help the public better understand their financial products, services, and rights in these matters, the CFPB seeks to simplify required forms and use plain language in all required documents.

The CFPB website has a resource center to answer any questions you may have about forms or the TILA-RESPA Integrated Disclosure rule. It includes sample forms, webinars, and compliance guides. Do not just rely on word-of-mouth information you may receive from other agents or mortgage professionals.  

Initial loan estimates

From August 1, 2015 and going forward, borrowers will receive one Loan Estimate form instead of the separate forms for the Good Faith Estimate (GFE) and the disclosure form mandated by the Truth-in-Lending Act (TILA). This new form is three pages and borrowers should receive it along the same timetable that they had previously received their GFE.

Closing Disclosure form

The HUD-1 Settlement Statement is also combined with the final TILA-mandated form to become one Closing Disclosure form. This form is five pages. It includes terms of the loan and the financials of the sale closing.

Could affect closing date

The new rule mandates that borrowers have some time to review the Closing Disclosure in detail prior to signing. When the rule goes into effect, borrowers will have three days to review the form. That three days stars from the time they receive the form. If it is mailed, the three days start three days after it is mailed. This could result in a total of six days if the form is mailed instead of hand-delivered to the borrower.

No more line numbers

In an effort to make the Closing Disclosure form easier for borrowers to understand, the familiar line numbering of the HUD-1 is gone and in its place the charges and fees will appear under one of the following seven categories:

• Pre-paids
• Taxes and government fees
• Escrow paid at closing
• Origination fees
• Services the borrower did not shop for
• Services the borrower did shop for
• Other

In each of the categories, the individual charges are listed alphabetically. They are divided into columns for the seller, buyer, and other. There are also columns indicating payments made before closing and at closing. It is possible that your clients will get more than one Closing Disclosure. If your buyers receive their Closing Disclosure several days in advance of the closing and final walk-through of the property, another will be necessary to show and adjustments due to issues found during the walk-through or other circumstances. The CFPB requires that any change in the numbers be re-disclosed, even if the changes occur after closing, such as changes to the actual amount of recording fees.