New Integrated Mortgage Disclosure Rules the Biggest Change in Decades

New Mortgage Disclosures
Gary Waters/Getty Images

The Good Faith Estimate has been the status quo in mortgage lending for longer than I have been alive. 4 decades of GFE's issued on nearly every purchase that required a mortgage?

I tried to wrap my head around the number of GFE's issued since their introduction and simply could not arrive at a number.

Thank you for ~40 years of service GFE. You were almost adequate for most of those years before the CFPB changed you into an incomprehensible 6-page mess.

And just like that you are gone.

The Truth-In-Lending, another multi-decade standby, will be joining the Good Faith Estimate in retirement - somewhere in Belize, I believe.

A couple antiquated disclosures aren't the only thing staring down the winds of change though. Last minute "tweaks" to your closing costs or even your down payments - not going to happen anymore . Closing in less than 30 days? Forget about it.

Your experience earned by braving the housing market over the past decade and buying or selling homes was just neutralized. You and the first-time buyers have officially been consolidated to the same boat.

There is a new sheriff in town with a new set of rules.

The Consumer Financial Protection Bureau, or CFPB, recently finalized the most sweeping set of reforms the mortgage industry has seen since the 1970's enactment of  two Federal statutes that still rule today: the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act of 1974 (RESPA).

TILA and RESPA have been the law of the land for nearly 40 years. Federal law required lenders to provide two different disclosure forms created from these long-reigning statutes to every consumer applying for a mortgage loan.

The TILA and RESPA disclosures were developed by two separate government agencies independently and contain inconsistent language, despite the fact that information inside the two documents often overlapped.

Two forms, similar information, but using different verbiage. You probably know how that story ends - in confusion.  

The CFPB hopes that their new consolidated RESPA / TILA disclosures set to go live on August 1st, will eliminate that confusion and lead borrowers to a better understanding of their mortgage and, ultimately, less defaults.

The National Association of Realtors (NAR) recently provided some guidance to their flock on the looming RESPA / TILA mortgage disclosure changes that brought things home and opened some eyes.

NAR's advice to real estate agents? Add fifteen days to your standard escrow and closing timeframe.  

While seemingly trivial to many, telling a real estate agent that they will have to wait an additional 15 days to close escrow - aka receive their commissions - is serious business in that world.

The entire industry - from real estate agents to mortgage lenders and onto  title & escrow services - are bracing for a seismic shift in workflows and workloads as they make adjustments to meet the new compliance burden set to be unleashed later this Summer.

This set of 'reforms' are somewhat unique in that they are the first wholly developed and enacted by the new governing body of?

everything? - the Consumer Financial Protection Bureau. Also known as the CFPB.

What are the biggest changes to the TILA and RESPA rules?

The Loan Estimate and the Closing Disclosure represent the biggest shift from the current rules in that they are entirely new and replacing documents which have been in use for decades.

The Good Faith Estimate (GFE) and the initial Truth-in-Lending disclosure (initial TIL) have been combined into a new form, the Loan Estimate.

The new Loan Estimate form is designed to provide disclosures that will be helpful to consumers in understanding the key features, costs, and risks of the mortgage loan for which they are applying.

Page 1 of the Loan Estimate 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.

Page 2 of the Loan Estimate contains 4 primary categories:  A good-faith itemization of the Loan Costs and Other Costs associated with the loan, the Calculating Cash to Close table - to show the consumer how the amount of cash needed at closing -  and an Adjustable Payment (AP) Table (adjustable rate mortgages only).

The items associated with the mortgage are broken down into two general types, Loan Costs and Other Costs.

Generally, 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. Other Costs include taxes, governmental recording fees, and certain other payments involved in the real estate closing process.

The Loan Estimate must be sent by the lender no later than 3 business days from application.

Second, the HUD-1 and final Truth-in-Lending disclosure (final TIL and, together with the initial TIL, the Truth-in-Lending forms) have been combined into another new form, the Closing Disclosure, which is designed to provide disclosures that will be helpful to consumers in understanding all of the costs of the transaction

The Closing Disclosure generally must contain the actual terms and costs of the transaction and must be in writing. Straight from the horses mouth:

Creditors may estimate disclosures using the best information reasonably available when the actual term or cost is not reasonably available to the creditor at the time the disclosure is made. However, creditors must act in good faith and use due diligence in obtaining the information.

If the actual terms or costs of the transaction change prior to consummation, the creditor must provide a corrected disclosure that contains the actual terms of the transaction and complies with the other requirements including the timing requirements, and requirements for providing corrected disclosures due to subsequent changes.

In layman's terms; you are going to have to wait to close. That wait will be 3 business days.

Again, directly from the CFPB guide: If the creditor provides a corrected disclosure, it may also be required to provide the consumer with an additional three-business-day waiting period prior to consummation.