On July 9, the Consumer Financial Protection Bureau (CFPB) published a proposed rule intended to simplify and improve mortgage disclosure forms. The proposal introduces the combined Truth-in-Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA) disclosure as required by sections 1032(f), 1098, and 1100A of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). The proposed rule also includes a detailed explanation of how the proposed disclosures should be completed. If implemented, the rule would apply to most closed-end consumer mortgages, except home equity lines of credit, reverse mortgages, or mortgages secured by a mobile home or dwelling that is not attached to real property.
The proposed rule calls for two new disclosure forms:
►The Loan Estimate, which would replace the early Truth-in-Lending Disclosure and the Good Faith Estimate (GFE), would be provided to customers within three business days of application. The Loan Estimate is intended to assist consumers in understanding the features, costs, and risks of the mortgage for which they are applying. The proposed rule permits either the broker or the lender to provide the disclosure; however, the lender remains responsible for the accuracy of the disclosure.
►The Closing Disclosure, which would replace the HUD-1 Settlement Statement and the revised Truth-in-Lending Disclosures, would be provided to the consumer at least three business days before closing. The Closing Disclosure provides an accounting of the settlement transaction and would also contain additional disclosures required by the Dodd-Frank Act. The closing disclosure would be delivered to the consumer by either the lender or the settlement agent, but the lender would remain responsible for the accuracy of the form.
In addition to proposing new disclosure requirements, the proposed rule provides for:
►Limitations on closing cost increases: Unless an exception applies, charges for the following services could not increase: the lender’s or mortgage broker’s charges for its own services, charges for services provided by an affiliate of the lender or mortgage broker, and charges for services for which the lender or mortgage broker does not permit the consumer to shop. Charges for other services could generally not increase by more than 10%, subject to certain exceptions.
►Changes to the calculation of the annual percentage rate (APR): Under the proposed rule, the APR would encompass almost all of the upfront costs of the loan. With certain limited exceptions, most charges paid at or prior to closing would be designated as finance charges.
The comment period for most of the proposal ends Nov. 6, including the proposed changes to the calculation of APR and the definition of the finance charge. Initially, the comment period for the proposed changes to the calculation of APR and the definition of the finance charge was Sept. 7. However, comments are due on Sept. 7 regarding the delay of the effective date for certain disclosures required by the Dodd-Frank Act, which would otherwise be effective on Jan. 21, 2013.
Laurie Spira is chief compliance officer with Torrance, Calif.-based DocMagic Inc. She may be reached by phone at (800) 649-1362, ext. 6446 or e-mail
[email protected].
