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WHITE PAPER
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Integrated Disclosures:
What Lenders Need To
Know About Upcoming
TILA-RESPA Changes
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A new requirement resulting from the Dodd-Frank
Act combines four lending disclosures into two
and helps consumers better understand mortgage
costs and risks. Are you ready for the rollout?
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March 16, 2015
ABSTRACT: On August 1, 2015, the Consumer Financial
Protection Bureau begins enforcing new rules relating to the
disclosures consumers receive when applying for – and
closing on – mortgage loans. The new integrated disclosures
replace existing forms established under the Truth in
Lending Act and the Real Estate Settlement Procedures Act.
Four currently used disclosures are consolidated into two
forms: a Loan Estimate intended to help loan applicants
understand a mortgage’s terms, payments, and closing
costs, and a Closing Disclosure aimed at helping consumers
determine the total costs associated with a mortgage. The
Bureau has indicated that the implementation deadline is
firm, and financial institutions face steep penalties for failing
to comply with the new regulations.!
!
The Great
Recession
exposed
consumer
lending
regulations that
were both
outdated and
inconsistent.
Introduction!
In the late 2000s, the United States faced its most severe
economic crisis in generations, launching the country into an
uncertain period that economists, analysts, and reporters
labeled the “Great Recession” (Rampell, 2009). The
recession cost the nation nearly 9 million jobs and took
hundreds of billions of dollars out of the economy. While the
downturn that began in 2007 officially ended in 2009, the
Great Recession will have a lasting impact on the nation’s
financial institutions. The crisis was, most experts contend,
caused in large part by careless government oversight of
mortgage lenders (U.S. Department of the Treasury [DOT],
2013).!
! In the years leading up to the recession, the country
experienced an unprecedented housing boom. Financial
institutions had aggressively grown their loan portfolios by
relaxing lending standards and approving high-risk
mortgages. The easy availability of mortgages drove housing
prices upward to unsustainable levels, and lenders used
artificially inflated equity amounts to justify approving
subprime loans. Before long, over-extended borrowers
began defaulting on their mortgages, and financial
institutions began to fail. More than 700 U.S. banks required
government financial assistance in order to remain solvent,
including many once-solid institutions with household names
(DOT, 2013).!
! The Great Recession exposed consumer lending
regulations that were both outdated and inconsistent.
Mortgage lenders, often operating with scarce oversight,
were able to hide extra fees and deceptive payment terms
among their documents’ fine print. Unsuspecting consumers
Integrated Disclosures: What Lenders Need To Know About Upcoming TILA-RESPA Changes!
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could not easily determine the actual costs associated with
their mortgages; therefore, many people had little way of
knowing whether or not they could afford to repay their
loans.!
! As the economic crisis lingered, many Americans began
losing faith in their country’s financial system. The federal
government responded by creating programs aimed at
shoring up bank financial sheets, keeping homeowners in
their houses, and strengthening the overall housing market
(DOT, 2013). Now, in the recession’s wake, a growing body
of regulations is empowering borrowers to reach informed
financial decisions by making mortgage details easier to find
and understand. With that goal in mind, a new law goes into
effect later this year and revises the ways mortgage lenders
disclose their loan terms.!
New disclosure
requirements call
for clear language
and easy-to-find
information
about interest
rates, monthly
payments, and
closing costs.
!
The Dodd-Frank Act!
For several decades, various federal statutes have
obligated mortgage lenders to provide potential borrowers
with detailed disclosures about their home loans. The Truth
in Lending Act (TILA), for example, requires lenders to
disclose information about a mortgage’s conditions, fees,
and risks. The Real Estate Settlement Procedures Act of
1974 (RESPA) requires lenders to provide consumers with
good faith estimates of closing costs, interest rates, and
other expenses. Although TILA and RESPA are separate
laws, there is considerable overlap – and often inconsistency
– in their disclosure requirements (Consumer Financial
Protection Bureau [CFPB], 2014).!
! After the American public’s confidence in the country’s
financial institutions was shaken during the Great Recession,
Congress passed the Dodd-Frank Wall Street Reform and
Consumer Protection Act in 2010. With an emphasis on
creating transparency in the financial services industry, the
bill contains provisions aimed at protecting borrowers from
abuses by banks and other lending institutions (Dodd-Frank
Wall Street Reform and Consumer Protection Act [DoddFrank], 2010). Toward that end, Dodd-Frank revised the
guidelines that lenders must follow when disclosing
mortgage loan specifics to consumers.!
! A key mandate contained in Dodd-Frank was the
establishment of an independent bureau to regulate the
ways in which institutions offer consumer financial products
and services. Among its assigned duties, the Consumer
Financial Protection Bureau is charged with simplifying and
integrating the mortgage loan disclosures of TILA and
Integrated Disclosures: What Lenders Need To Know About Upcoming TILA-RESPA Changes!
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Integrated
disclosures must
be provided on
applicable
transactions for
which Lenders
receive
applications on
or after August 1,
2015.
RESPA (CFPB, 2014).!
! After considerable research – and ample time allowed for
public comment – the CFPB is finally ready to launch its new
integrated disclosure rules. The Bureau’s so-called “Know
Before You Owe” disclosures are designed to help borrowers
understand the terms and costs of a lender’s mortgage
package, while making it easier for consumers to compare
competing loan offers (PwC, 2014).!
! The CFPB’s new disclosure rules apply to most closedend consumer mortgages that are secured by real estate,
including construction-only loans and loans secured by
vacant land. However, some loan categories are excluded
from the rules, such as home equity lines of credit, reverse
mortgages, or mortgages secured by mobile homes or other
dwellings not attached to land (CFPB, 2014). And lenders
who issue five or fewer mortgages a year are exempt from
compliance. But the dispensations appear to be temporary:
the CFPB has hinted that it plans to address integrated
disclosures for other mortgage types in separate rulings
(PwC, 2014).!
! Creditors must begin providing integrated disclosures on
applicable transactions for which they receive applications
on or after August 1, 2015 (CFPB, 2014). Early
implementation is prohibited, so lenders must continue using
their existing disclosures until August.!
! With the starting date looming, it’s imperative that
mortgage lenders understand how to fully comply with the
new integrated disclosure requirements.!
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Two New Forms!
The new TILA-RESPA rule consolidates four existing forms
into two, integrating overlapping information from existing
disclosures while adding new information. Consumers will
receive the disclosures at separate points in the mortgage
origination process (CFPB, 2014). Unlike the forms they
replace, the simpler disclosures will contain only details
meaningful to a borrower’s specific loan, with the most
important information listed on the first page (Stewart, 2014).!
! Intended to help ensure that loan applicants understand
the mortgage’s terms, payments, and closing costs, the
Loan Estimate replaces the Good Faith Estimate and the
initial Truth-In-Lending disclosure. Lenders have just three
business days after receiving a consumer’s loan application
– and seven business days before loan consummation – to
deliver or mail the Loan Estimate form (CFPB, 2014).!
! The Loan Estimate contains good-faith details of all costs
Integrated Disclosures: What Lenders Need To Know About Upcoming TILA-RESPA Changes!
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The so-called
“Know Before
You Owe”
disclosures are
meant to help
borrowers
understand the
terms of their
mortgages,
while making it
easier to
compare
competing loan
offers.
associated with the loan, along with interest rate and
monthly payment tables (CFPB, 2014). While some
tolerances exist, costs listed on the Loan Estimate are
generally considered to be made in good faith if they are
equal to or less than the costs ultimately imposed. All
estimated figures must be designated accordingly.!
! While much of the information required on the Loan
Estimate can be found on current disclosures, the new form
contains significant additions. For example, whereas the
Truth-In-Lending form discloses the existence of any
prepayment penalty fees, the Loan Estimate must specify
what constitutes a prepayment, as well as the maximum
prepayment penalty amount. The form must also disclose
the total interest amount the borrower will pay over the life of
the loan, and reflect any installment payment amount
changes that could result from interest-rate adjustments,
balloon payments, or termination of mortgage insurance
(PwC, 2014). The terms and estimated costs included within
the three-page document should make it easier for mortgage
loan consumers to comparison shop (CSi, 2015).!
! The Closing Disclosure is meant to aid consumers in
understanding all actual costs related to the mortgage –
information that is currently provided on the HUD-1
settlement statement and final Truth-In-Lending disclosures
(CFPB, 2014). Consumers must receive the Closing
Disclosure at least three business days prior to the loan’s
consummation.!
! When a Closing Document is mailed to the borrower, the
“mailbox rule” applies to the three-day notice requirement.
It’s assumed that a borrower will receive the Closing
Document three days after the lender places it in the mail.
For that reason, to ensure borrowers receive the form a full
three days prior to consummation, lenders must mail it a
week ahead of time (Horn, 2015).!
! The five-page Closing Disclosure breaks down closing
costs into those paid at closing and before closing. Lenders
must make certain that actual costs passed onto consumers
fall within the acceptable tolerances of the good-faith
amounts listed on the Loan Estimate (PwC, 2014).!
! Changes to mortgage terms that make the Closing
Disclosure inaccurate could extend the waiting period
between disclosure receipt and loan closing. For example,
significant changes to a loan’s interest rate, or the addition of
a prepayment penalty, both require a revised Closing
Disclosure, thereby restarting the three-day waiting period
(PwC, 2014).!
Integrated Disclosures: What Lenders Need To Know About Upcoming TILA-RESPA Changes!
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Lenders must
also notify
borrowers prior
to closing active
escrow accounts
and when
transferring
mortgage
servicing rights.
! Both the Loan Estimate and Closing Disclosure must
contain clearly written, easy-to-locate information that
consumers can use for comparing competing loan offers, as
well as for determining their ability to afford the mortgage
(CFPB, 2014). To encourage consumer involvement, the
Loan Estimate’s first page must include the statement,
“‘Save this Loan Estimate to compare with your Closing
Disclosure,” along with a website link where applicants can
locate additional information online.!
! TILA-RESPA allows for mortgage brokers and settlement
agents to provide the Loan Estimate and Closing Disclosure,
in lieu of the lender. However, whether the broker or lender
provides the disclosures, the lender is ultimately responsible
for each document’s accuracy (Horn, 2015).!
! CFPB designed both new forms with the goal of improving
consumers’ ability to find and understand the information
listed. That’s why the Bureau established mandatory
standards for such elements as font sizes, shading,
underscoring, and dollar amount rounding and truncating
(CSi, 2015).!
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Other Considerations!
In addition to revising their upfront disclosure forms,
lenders have new obligations after mortgage loans are
closed. For example, borrowers must be notified prior to the
closing of active escrow accounts established for closed-end
mortgages secured by real estate. Prior notice of at least
three business days must be given when the account is
closed at the consumer’s request, or 30 days if closed for
any other reason. Notification exceptions include escrow
accounts tied to reverse mortgages and those established
because of payment delinquency or loan default (CFPB,
2014).!
! Lenders must also notify consumers when transferring
mortgage servicing rights, and disclose how partial
payments are handled and applied. !
! It bears repeating that the TILA-RESPA changes do not
apply to all mortgages, including home equity loans and
reverse mortgages. The Bureau’s indication that it will
update disclosure guidelines for those and other loan types
in future rulings signals a drawn-out compliance
implementation process. In the meantime, requiring lenders
to use current disclosure forms for loans unaffected by the
TILA-RESPA revisions makes complying with disclosure
rules even more complicated for financial institutions (Horn,
2015). !
Integrated Disclosures: What Lenders Need To Know About Upcoming TILA-RESPA Changes!
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!
Pending Deadline!
With nearly
two years to
prepare, the
implementation
deadline should
not come as a
surprise to
financial
institutions.
Legislators and mortgage industry trade groups have
been urging CFPB to delay implementing the TILA-RESPA
changes beyond the August 1, 2015 deadline. After all,
complying with the new regulations requires upgrading
technology and internal procedures, and could prove
especially time-consuming for community banks and credit
unions (Swinderman, 2015).!
! Complicating the daunting task of implementation is the
sheer length and complexity of the regulation. In its full
version, the rule is nearly 1,888 pages and includes lengthy
discussions and examples. Considerable time is required
just to read and understand the complex regulatory text
(Horn, 2015). One group, the American Land Title
Association, has asked the CFPB to at least consider a fivemonth restrained enforcement period (Swinderman, 2015).!
! But having given lenders twenty-one months to prepare
for the new disclosures, the CFPB has expressed
unwillingness to prolong the implementation timeframe. At a
hearing on the matter, CFPB Director Richard Cordray told
the House Committee on Financial Services that finance
companies were given plenty of time to prepare for
integrated disclosures. The pending deadline, said Cordray,
should not be a surprise to anyone (Swinderman, 2015).!
! To further prove that point, rather than offering leniency in
the form of implementation extensions, the Bureau has
described significant penalties for noncompliance (Fogarty,
2014). Mortgage lenders violating the new disclosure
requirements face steep financial penalties ranging from
$5,000 to $1,000,000 – per day – determined by the
institution’s intent or recklessness. Other risks include cease
and desist orders and civil lawsuits from borrowers.!
! With the Bureau clearly comfortable with the amount of
time it allowed for mortgage lenders to implement integrated
disclosures, financial institutions had better be ready for the
August rollout (Horn, 2015).!
!
Conclusion!
The Great Recession’s mortgage crisis shattered the
American public’s confidence in their financial institutions.
Citing outdated rules and lax oversight of lenders, Congress
passed the Dodd-Frank Wall Street Reform and Consumer
Protection Act in an effort to increase transparency among
the financial services industry. Included in its provisions,
Integrated Disclosures: What Lenders Need To Know About Upcoming TILA-RESPA Changes!
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Dodd-Frank paved the way for new rules regulating how
lenders disclose mortgage loan information to consumers.!
! Established under Dodd-Frank, the Consumer Financial
Protection Bureau was charged with simplifying the
mortgage loan disclosures provided to applicants prior to
loan consummation. The resulting integrated disclosure
forms, the Loan Estimate and Closing Disclosure, are
intended to provide consumers with uncomplicated language
and easy-to-find information.!
! Mortgage lenders must begin providing integrated
disclosures August 1, 2015, a deadline that by all indications
is firm. Financial institutions face costly fines for failure to
comply with the new disclosure requirements.!
!
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This white paper is intended to provide a general
overview of the rules only. Lenders should consult their
legal counsel to fully understand their TILA-RESPA
obligations. !
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Integrated Disclosures: What Lenders Need To Know About Upcoming TILA-RESPA Changes!
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REFERENCES!
Consumer Financial Protection Bureau. (2014, September).
TILA-RESPA Integrated Disclosure Rule – Small Entity
Compliance Guide. Retrieved from http://
files.consumerfinance.gov/f/201409_cfpb_tila-respaintegrated-disclosure-rule_compliance-guide.pdf!
CSi. (2015, February 19). TILA-RESPA integrated
disclosures FAQS. Retrieved from http://
www.compliancesystems.com/tila-respa-integrateddisclosure-faq/ !
Dodd-Frank Wall Street Reform and Consumer Protection
Act, H.R. 4173, 111th Cong. (2010).!
Fogarty, M. (2014, August 13). Time to get serious about
RESPA/TILA compliance. Retrieved from http://
www.nationalmortgagenews.com/blogs/hearing/time-toget-serious-about-respatila-compliance-1042359-1.html!
Horn, R. (2015, January 7). The TILA-RESPA integrated
disclosures: The beginner’s guide to implementation.
Mortgage Compliance. Retrieved from http://
www.mortgagecompliancemagazine.com/featured/tilarespa-integrated-disclosures-beginners-guideimplementation/ !
PwC. (2014, March). CFPB mortgage disclosure rules: An
analysis of the Consumer Financial Protection Bureau’s
“Know Before You Owe” disclosure forms. Retrieved from
http://www.pwc.com/en_US/us/consumer-finance/
publications/assets/pwc-cfpb-mortgage-disclosurerules.pdf!
Rampell, C. (2009, March 11). ‘Great Recession’: A brief
etymology. The New York Times. Retrieved from http://
economix.blogs.nytimes.com/2009/03/11/greatrecession-a-brief-etymology/ !
Stewart, K. (2014, December). Preparing for TILA-RESPA
changes. Retrieved from http://www.wolterskluwerfs.com/
tila-respa/article-12152014.aspx!
Swinderman, A. (2015, March 9). CFPB director to real
estate industry: Take August TILA-RESPA rule effective
date seriously. Retrieved from http://www.inman.com/
2015/03/09/cfpb-director-to-real-estate-industry-takeaugust-tila-respa-rule-effective-date-seriously/!
U.S. Department of the Treasury. (2013, September). The
financial crisis five years later: Response, reform, and
progress. Retrieved from http://www.treasury.gov/
connect/blog/documents/financialcrisis5yr_vfinal.pdf!
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Owned and operated by a full-service mortgage banker,
Origin8 offers expertise in every area of mortgage lending –
from marketing to underwriting, and from servicing to
training. Our team consists of professionals with
considerable mortgage experience, and we share the
benefits of that knowledge with our clients.!
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Correspondent Lending Division of:!
© Copyright 2015. Northern Ohio Investment Co.!
All Rights Reserved.
Integrated Disclosures: What Lenders Need To Know About Upcoming TILA-RESPA Changes!
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