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Another milestone reached by the mortgage industry reform: the end of the  disclosure forms confusion! Provided to those applying for a mortgage, these forms were originally created based on two separate federal statutes: Truth in Lending Act (TILA) and Real Estate Settlement Procedures Act (RESPA). The duplicate information as well as erratic language of these two separate documents, lead to an immense amount of confusion. Apart from those two documents, there were also two sets of disclosures: one provided when applying for a mortgage, and the other provided at the closing or just prior to closing on the loan. The consumers weren’t the only ones confused -even the lenders had a difficult time completing the forms. Basically, if the lenders weren’t even able to understand the verbiage, how could they possibly explain the documents to the consumers? 

[Update: The Consumer Financial Protection Bureau announced a proposal to delay the effective date of the TILA-RESPA Integrated Disclosure rule until Oct. 1.Click here to read more.]

The resolve (hopefully) . . two new, straight-forward disclosure forms. This change will apply to all consumer mortgage applications received on or after August 1, 2015. The change is currently being referred to as “TRID,” for TILA-RESPA Integrated Disclosure.

The changes . . In a Nutshell

♦ With TILA, lenders use a uniform system for disclosures, including the same credit terminology.

♦ The Real Estate Settlement Procedures Act (RESPA) applies to any federally related mortgage loan, generally including any loan secured by a first or subordinate lien on family residential property (1-4 units).

♦ CFPB was responsible for integrating the existing disclosure requirements with the new amended requirements by combining the RESPA and TILA disclosures.

♦ The integrated mortgage disclosures use language that is designed to help consumers better understand the mortgage loan closing transaction.

♦ The new “Loan Estimate” form integrates and replaces the existing RESPA Good Faith Estimate (GFE) and the initial Truth in Lending forms.

♦ The new “Closing Disclosure” form integrates and replaces the existing RESPA HUD-1 and the final Truth in Lending forms.

♦ The integrated disclosure rule does not apply to HELs, reverse mortgages, mobile homes and dwellings not attached to real property, or for those making 5 or less mortgage loans per year.

♦ The definition of an “application” has been changed; now, an application consists of six pieces of information which are submitted.

♦  Consumers can’t be charged for fees until after they’ve been given the Loan Estimate form and consumers have agreed to proceed with the transaction.

♦ The Loan Estimate is provided to the consumer within 3 business days after submitting a mortgage loan application.

♦ There are only six legitimate reasons for revisions to a Loan Estimate form.

♦ The Closing Disclosure form integrates and replaces the existing RESPA HUD-1 and the final Truth in Lending disclosure forms.

♦ A Closing Disclosure is provided to the consumer so that they have a 3 business day waiting period before closing on the mortgage loan.

♦ There is now a three business day requirement once the consumer has received the Closing Disclosure, representing a waiting period for the consumer to review the disclosure.

♦ The lender now has all the liability for preparation and delivery of the Closing Disclosure form, even if they allow the escrow company to do it.

♦ The new Integrated Disclosures must be provided by a lender or mortgage broker that receives an applicationfrom a consumer for a closed-end credit transaction secured by real property on or after August 1, 2015.

♦ For a Loan Estimate, a “business day” is a day on which the lender’s offices are open to the public for carrying out business functions.

♦ For a Closing Disclosure, a “business day” includes all calendar days except Sundays and legal holidays.

♦ The Loan Estimate must be delivered or placed in the mail no later than the 3rd business day from receipt of the mortgage loan application.

♦ The Closing Disclosure must be placed in the mail no later than the 7thbusiness day before consummation of the loan.

♦ The “Your Home Loan Toolkit: A Step-by-Step Guide” replaces the HUD Settlement Cost Booklet.

Key Points derived from The CE Shop “RESPA/TILA Changes: Are you Ready?” course. Right now the course is completely free when you use the promotional code (respafree) at check out. No credit card info is required.

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Per the Consumer Financial Protection Bureau’s own Newsroom May 28, 2014 the CFPB Takes Action Against Realty South for Mortgage Disclosure Violation and orders the firm to pay $500,000.00

Back in 2006, about a year after I got into real estate, I noticed several local Brokerages working very closely with affiliated companies like Title companies or Mortgage Lenders. Fresh out of real estate school, these business affiliations were always a point of contention with me because, it felt like a fine line RESPA violation. Granted, the company I worked for at the time had it’s own business affiliations, namely a  specific Title company that was attached to almost all of their brokerage office but, we had a single page disclosure to consumers that made it clear, they didn’t have to use any affiliated business service provider and had the right to use whoever they wanted for any required service. In essence, I felt safe about using affiliated business service providers because, we made it clear, it was nothing more than a suggestion and not a requirement.

With all that being said, I do remember some brokerages (not the one I worked for) where consumers weren’t given the choice, option or disclosure that they didn’t have to use the brokerages preferred Lender or Title company. I remember walking into brokerages where big signs at the door greeting me with advertisements like, “ABC Bank Offers the Best Rates for Realty USA Clients”. Or course, I changed the names to protect their identities but, these types of ad’s were common place in some brokerages around here.

Well, back then, I don’t guess many people thought twice about the RESPA violation or potential violation because, whoever heard of any being fined or charged with a crime? Sure, we heard stories but, they were always in some far off state about some no name broker so, who really worried about that happening here?

Well, in light of recent news from the CFPB, people better start wising up quick. The CFPB is here and they are looking to make a name for themselves off the convictions and fines for violators. To be crystal clear, this is a good thing, my industry needs some serious enforcement. Truth is, the serious lack of enforcement over the years has created a industry where honest mistakes, systemic errors, gross incompetence, and in some cases, nefarious intentions are routine with some brokerages. It’s sad to say this but, it’s true. I am frustrated every day….no exaggeration….every single day by at least 2 or 3 Realtors who call me to ask me questions about my clients confidential transaction information that when I reply to them, “I am sorry but, I reserve those discussions with my clients only”….they blow up, accuse me of not knowing my job. It’s pathetic…..it really is. My point is, I am an advocate for enforcement, at least at this stage, all the enforcement we can get will be a good thing.

I challenge Brokers to read the CFPB newsroom articles. They may be surprised at just how the CFPB is going after violations. In fact, one article I read said that they fined a broker for a violation because, in their opinion, even though they did disclose, it didn’t go far enough. Brokers, you better be doing a good job at protecting yourself and ensuring your business affiliations are properly disclosed and no funny business is going on or, I may be writing a blog about your run in with the CFPB soon.