On Wednesday, the Consumer Financial Protection Bureau (CFPB) finalized its long-awaited regulation integrating the Truth in Lending Act (TILA) and Real Estate Settlement Procedures Act (RESPA) mortgage disclosure forms. This e-Alert will be the first of many discussing these regulatory changes. Below are a few key issues to be aware of as you dig into the final rule.
Effective Date
The new requirements apply to applications received on or after August 1, 2015. While this may seem like a lengthy implementation period, the new rule is complex and will require countless hours of analysis, discussion, procedure changes, training and testing.
Scope & Applicability
The final rule applies to closed-end consumer transactions secured by real property. This includes loans on 25 or more acres, vacant-lot loans and construction-only loans (all of which were previously exempt from RESPA). The final rule does not apply to home equity lines of credit (HELOCs), reverse mortgages, or mortgages secured by a mobile home or by a dwelling that is not attached to real property (e.g., manufactured homes secured by personal property).
No Exemptions for Small Creditors
The new rules apply to all creditors making closed-end consumer transactions secured by real property. The CFPB was asked to provide an exemption for small creditors and they explicitly declined to do so.
New Disclosure Form Terminology
The CFPB's final rule integrates the TILA and RESPA disclosure forms. Specifically, the new Loan Estimate - which must be provided within three business days after receiving an application - replaces the early Truth in Lending disclosure and the Good Faith Estimate. And, the new Closing Disclosure - which must be provided at least three business days prior to closing - replaces the final Truth in Lending disclosure and the HUD-1 settlement statement.
Additional Restrictions on Settlement Services
The final rule provides additional restrictions on closing cost increases. The CFPB moved fees paid to an affiliate as well as fees paid to a service provider the consumer cannot shop for to the zero tolerance category (these are currently in the 10% tolerance category). Unless an exception applies, these fees cannot increase.
No All-In Annual Percentage Rate
The proposed rule included a discussion of whether the CFPB should move away from the current definition of "finance charge" and move to a so-called "All-In APR" that would cover most fees and charges. The final rule did not adopt the "All-In APR"; however, the CFPB did indicate they would continue to study this issue.
No Requirement for Cost of Funds Disclosure
One of the controversial parts of the proposal was a disclosure related to the creditor's cost of funds. Dodd-Frank required this disclosure but the benefit to consumers was not clear. In the final rule, the CFPB decided to exempt creditors from having to provide the cost of funds disclosure.
Bonus: While the proposed rule clocked in at a weighty 1,099 pages, the final rule stretches 1,888 pages.
If you have any questions or need assistance, please feel free to contact Steve Van Beek or Michael Bell.
