In 2015, pursuant to the Dodd-Frank Act, the CFPB’s (Consumer Financial Protection Bureau) new closing disclosure rules went into effect. Integrating the mortgage loan disclosures of two prior Federal statutes – TILA (Truth in Lending Act) and RESPA (Real Estate Settlement Procedures Act) – the new TRID (TILA-RESPA Integrated Disclosure Rule) made well-established closing documentation like the GFE (Good Faith Estimate), HUD-1 Settlement Statement, and TIL (Truth-in-Lending) forms obsolete. In their place are two new forms, the Loan Estimate (LE) form and the Closing Disclosure (CD) form.
The Loan Estimate form replaces the early TIL and GFE forms. This three-page form summarizes the terms of the loan – its amount, interest rate, and the total monthly principal and interest. Following each item is a box telling you whether or not a post-closing cost increase is possible and if the loan comes with any prepayment penalties, negative amortization, or balloon payments.
Everything from projected monthly payments, estimated property and homeowners insurance costs, the property’s assessed value, projected closing costs, and estimated cash to close (closing costs + down payment) is detailed in a clear easy-to-understand manner.
Lenders are required to provide this easy-to-understand summary of loan terms once the consumer submits a loan application. The lender must stand by their estimate for ten days to give the prospective borrower time to shop around. There are six elements that define a loan application, they are:
Once this information has been submitted, the lender must deliver the LE form. The Lender is completing this Loan Estimate based on the “best information known at the time” of disclosure. Certain fees tied to escrows, construction loans, etc. may be unknown at the time of the LE. Therefore, it’s important for Lenders to document what information is known at the time the Loan Estimate has been prepared. It’s also important to continue to document when and why any fee or circumstance has changed.
While lenders can ask about a borrower’s employment status or an existing sales contract, they cannot imply that a verification of employment document or a purchase/sales contract is needed to obtain a LE. These verification documents had previously been a prerequisite for many lender loan pre-approval programs. Under the new guidelines, the consumer can voluntarily pass them onto the Lender but they’re prohibited from requiring them.
It’s important for the borrower to understand that receiving a Loan Estimate doesn’t mean they’ve been pre-approved or approved for a mortgage loan. This document is merely the loan terms the lender intends to offer if you choose to proceed. Additional financial information will be needed if you decide to move forward.
Beyond a reasonable credit report fee, no fees can be charged to consumers until after the Loan Estimate form has been received and the borrower has expressed an intent to proceed with the transaction.
If a rate is locked, the consumer must receive a revised Loan Estimate form within 3 business days. Even if a loan interest rate is floating, and locks later in the process, the lender still must provide a revised version of the Loan Estimate within 3 business days of locking the rate.
A revision cannot be issued once the Closing Disclosure has been finalized. This means all rate lock activity needs to be finalized one business day before the Closing Disclosure is issued. If a revised Loan Estimate is sent via U.S. mail, the consumer must receive it 7 to 8 days prior to closing to give them enough time to approve disclosures. The Closing Disclosure can then be delivered after the revised LE is accepted.
A locked-in rate is the only required redisclosure. Otherwise, a revision or redisclosure is only necessary if there’s a significant change
A Closing Disclosure (CD) is a five-page form that replaces the final TIL and HUD-1. Included in the Closing Disclosure are the final loan terms, projected monthly payments, and closing costs/fees. Also included in the CD is a statement from the Consumer Finance Protection Bureau for consumers to contact the CFPB at www.consumerfinance.gov/mortage-closing if they have any questions or concerns.
Per CFPB rules, it is ultimately the lender’s responsibility to prepare the Closing Disclosure.
Per CFPB rules, the borrower must receive a copy of the closing disclosure three days prior to docs being signed.
Once the Closing Disclosure is in the hands of the borrower, any last minute changes can be handled directly between the lender and Settlements, Inc. to prevent further closing delays. While adjustments and unanticipated costs may be handled through a revised CD created and sent to the closing table, it is still the Lender’s responsibility to produce and deliver a final Closing Disclosure with the accurate figures and retain/file that document.
Even changes to numbers following the closing must be documented. The Lender can make revisions to a CD for up to 30 days following closing but must confirm delivery to the borrower via signature.
TILA penalties on non-compliant Lenders in regards to Loan Estimate and Closing Disclosure rules are harsh. Penalties for honest mistakes on CDs can be as high as $5,000 per day. More careless or reckless errors can reach up to $25,000 per day. Fines for blatant, intentional, or ignored errors on a CD can reach up to $1,000,000 per day. This is why understanding and adhering to all rules and regulations is critical.
The above information is for general information purposes only. It is provided as a courtesy to help anyone working with Settlements, Ltd. or considering working with us to better understand new RESPA-TILA regulations. This information isn’t intended to be interpreted as legal advice and we encourage you to consult with your own compliance team or attorney to ensure you’re compliant with all applicable laws and regulations.