The CFPB has issued a new rule to “simplify and improve disclosure forms for mortgage transactions” and recently introduced a new rule – Integrated Mortgage Disclosures under the Real Estate Settlement Procedures Act (Regulation X) and the Truth In Lending Act (Regulation Z) – otherwise known as TILA-RESPA. The changes laid out in this new act will be officially put into place on August 1, 2015.
There is currently a major overlap in disclosure forms that results in confusion for consumers shopping for the perfect mortgage. To alleviate the confusion, Congress enlisted the CFPB to create new forms. These forms are the loan estimate, which is presented to potential borrowers 3 business days after loan application and the closing disclosure, given 3 days after closing. The improved forms were designed to deliver enhanced benefits to consumers, including:
- Reduced paperwork as a result of combining forms and disclosure requirements. This move will also alleviate customer confusion.
- Clearer language and more user-friendly design to help consumers understand complex mortgage and real estate transactions.
- Highlighting the most important customer information – including interest rate, monthly payment and closing costs – on the first page of the disclosure forms.
- Giving customers clear, concise details on taxes, insurance and interest rates, as well as information on penalties and possible increases to the mortgage loan balance.
- Making cost estimates for closing services more reliable.
- Requiring that consumers get access to closing disclosure documents at least 3 business days before closing.
In addition to the new forms, new fines will be put into place for non-compliance. Since 2009, the Consumer Financial Protection Act has enabled the CFPB to levy higher fines. In the past, violations may have cost lenders around $5,000 in total fines, but under the new rule, violations can cost up to $1 million. What’s more important is to note that these new penalties are assessed per day rather than per infraction.
TILA-RESPA is just the tip of the iceberg, and lenders need to be aware of these changes and their implications. Consumers are expecting companies to use the same digital and mobile channels that they use in their other day-to-day dealings. Lenders must be diligent in catching errors to avoid non-compliance and the accompanying penalties. TILA-RESPA demands efficient, clear communication – and lenders need to have the proper solutions in place to ensure a smooth transition to the new forms come next August.