By: Mikel Dunnagan
In the words of Jay Bruce, CEO/General Counsel here at American Bank Systems, “These rules are, perhaps, the most detailed, complex and demanding consumer compliance regulations to hit the banking industry.”
The documents most significantly affected by the TILA-RESPA changes are the Good Faith Estimate (GFE), HUD-1/1A Settlement Statement (HUD-1) and Truth in Lending Statement (TIL). For most consumer mortgage transactions, these documents are being replaced by the Loan Estimate and Closing Disclosure. Generally, replacing three documents with two is a good thing, but this case is different.
The early TIL, GFE, final TIL and HUD-1 settlement statement will still be required for some types of loans. So, not only do we get to learn a new way to document consumer real estate loans, we get to remember how to document certain loans the “old” way – a two-fer from the CFPB!
Bankers who like processes may ask, “Can we use these new forms for every consumer mortgage transaction?” The CFPB does permit the use of the new Loan Estimate and Closing Disclosure on any mortgage loan. However, it requires the use of GFE, HUD-1 and TIL for all consumer mortgage loans not covered by the integrated disclosure rules. In other words, a creditor may use the new disclosures but must also use the old way of documenting the loan – the GFE, HUD-1 and TIL.
The effective date for the use of the new disclosures is August 1, 2015. Unlike previous regulatory changes where regulators wanted banks to begin using the new forms or new procedures as soon as possible, the CFPB prohibits the use of the new forms prior to the effective date. In other words, creditors must hit the ground running. For applications received by a bank on or after August 1, the integrated disclosure rules apply – using the new disclosures for covered applications. For applications received prior to August 1 closing after August 1, banks must use the GFE, HUD-1 and TIL. This means that the creditor’s loan operation system must be able to accommodate both methods of documenting loans, the old way and the new way. This may require some procedural changes to accommodate this bifurcated process.
The new rules will cover most closed-end consumer credit transactions secured by real estate. This means we lose the following RESPA exemptions as of August 1, 2015: dwelling on 25-acres or more, construction loans, temporary financing, vacant land and certain trust loans.
And what would a regulatory rule be without exemptions from coverage? You’ve got it! The integrated disclosure rules provide for some limited exemptions: HELOCs, Reverse mortgages, mobile/manufactured home without land and banks that originate five or fewer covered loans in a calendar year.
