Charged by the Dodd-Frank Wall Street Reform and Consumer Protection Act to integrate loan disclosures stemming from the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act of 1974 (RESPA), the Consumer Financial Protection Bureau (CFPB) has created a united mortgage disclosure rule.
The new rule integrates four forms into two in order to create more streamlined and easier to understand mortgage disclosure paperwork.
The CFPB noted that consumers found the previous system confusing, with overlapping and inconsistent language. The government agency's new rule and forms will attempt to clear up the confusion.
In a guide accompanying the new forms, the CFPB said, "The forms use clear language and design to make it easier for consumers to locate key information, such as interest rate, monthly payments, and costs to close the loan. The forms also provide more information to help consumers decide whether they can afford the loan and to facilitate comparison of the cost of different loan offers, including the cost of the loans over time."
Two forms have been combined—the Good Faith Estimate (GFE) and the initial Truth-in-Lending Disclosure—to create a new form, the Loan Estimate. The Loan Estimate is designed to bring transparency to the lending process, providing key features, costs, and risks in an easier to understand format.
The Loan Estimate must be provided to consumers no later than the third business day after submitting a loan application.
Two other forms have been combined as well—The HUD-1 and the final Truth-in-Lending disclosure—to create another new form, the Closing Disclosure. The purpose of the newly created form is to help consumers understand all of the costs in the transaction.
The Closing Disclosure must be provided to consumers at least three business days before consummation of the loan.
The CFPB notes some caveats with the new rule: "The final rule applies to most closed-end consumer mortgages. It does not apply to home equity lines of credit (HELOCs), reverse mortgages, or mortgages secured by a mobile home or by a dwelling that is not attached to real property (i.e., land). The final rule also does not apply to loans made by persons who are not considered 'creditors,' because they make five or fewer mortgages in a year."
The TILA-RESPA rule is effective August 1, 2015, after which the new forms will take effect.