What is Changing?
In a nutshell, the new rules consolidate four existing documents into two new disclosures. The early TILA disclosure and traditional good faith estimate will be combined into a new disclosure called the Loan Estimate, and the final TILA disclosure and HUD-1 settlement statement will be consolidated into a new disclosure called the Closing Disclosure.
One of the more critical elements of the rule is a change in how the loan transaction information is presented on the documents. The look and feel of the disclosures will change from a static, or template look, to a dynamic form, meaning the documents will only contain content applicable to the individual transaction. This new dynamic
approach removes unnecessary or confusing language and simplifies the documents.
The simplified documents were developed by the Consumer Financial Protection Bureau (CFPB) in concert with significant consumer input and aim at making the content easier to understand. To that end, key loan information considered the most useful to the consumer has been placed on the first page of the Loan Estimate. New sections in the Loan Estimate cite the loan terms (including amount, interest rate, and monthly principal and interest payments) and the projected payments (including principal & interest, mortgage insurance, and estimated total monthly payments), providing more clarity to the consumer.
A “Costs at Closing” section has been added to the Loan Estimate that provides key information such as the total interest percentage and total amount of interest that will be paid over the loan term as a percentage of the total loan amount. In addition, the Loan Estimate Comparison shows how much the borrower will have paid in principal and interest over the first five years of the loan, and how much of the principal will have been paid off over that time period. These additional transaction tables will help consumers more easily comparison shop for loans.
While most of the timing requirements for delivering the Loan Estimate will be familiar to the industry, the delivery of the Loan Estimate now begins the seven-day waiting period before loan consummation. Additionally, there are significant changes to the
Closing Disclosure delivery requirements. Consumers must receive the Closing Disclosure three business days before consummation. New timing requirements for revisions or corrections to the disclosures will also impact existing process workflows and operational procedures.
How Should Banks Prepare for the Changes?
As the new documents cannot be used prior to Aug. 1, 2015, banks will have to have dual systems in play, continuing to use the current document process right up to the implementation date, while concurrently preparing for a transition to the new protocol. The new rules do not apply to certain types of loans, including HELOCS and
reverse mortgages. Lenders originating these types of loans will need to continue generating today’s existing disclosures. The new timing requirements will necessitate careful workflow planning as part of each organization’s implementation planning, along with a scope of change analysis, review and updating of loan policies and
procedures, document delivery protocol, vendor and broker coordination, testing, and training of staff to ensure a smooth transition.
“We encourage banks to start their planning immediately if it is not already underway, as the consequences of inaction and inadequate preparation are huge,” says Stewart, who points to her own organization’s TILA-RESPA Resource Center as a good starting
point for banks seeking insights on what they will need to do. “The magnitude of these changes cannot be overemphasized.”
Additional information and resources related to the TILA-RESPA Integrated Disclosure rule may be accessed at the CFPB’s website –
(https://www.consumerfinance.gov/regulatory-implementation/tila-respa/)
