The housing industry is abuzz with the upcoming deadline for the implementation of the TILA-RESPA Integrated Disclosures. The rule goes into effect on August 1, 2015 and has sent creditors scrambling to update their processes and systems to comply with the regulations. So we decided to put together some basic information about the rule and how it will impact the mortgage servicing industry.
What is TILA-RESPA?
The TILA-RESPA Integrated Disclosure consolidates four existing disclosures required under TILA and RESPA for closed-end credit transactions secured by real property into two forms.
First, the Good Faith Estimate (GFE) and the initial Truth-in-Lending disclosure (initial TIL) have been combined into a new form, the Loan Estimate. The Loan Estimate provides the consumer with good-faith estimates of credit costs and transaction terms. This form must be delivered or placed in the mail no later than the third business day after receiving the consumer’s application.
Second, the HUD-1 and final Truth-in-Lending disclosure (final TIL and, together with the initial TIL, the Truth-in-Lending forms) have been combined into another new form, the Closing Disclosure, which is designed to provide disclosures that will be helpful to consumers in understanding all of the actual costs of the transaction. This form must be provided to consumers at least three business days before consummation of the loan.
The TILA-RESPA rule applies to most closed-end consumer credit transactions secured by real property, but does not apply to:
- Reverse mortgages; or
- Chattel-dwelling loans, such as loans secured by a mobile home or by a dwelling that is not attached to real property (i.e., land).
When does it go into effect?
The new Integrated Disclosures must be provided by a creditor or mortgage broker that receives an application from a consumer for a closed-end credit transaction secured by real property on or after August 1, 2015.
Record Retention Requirements
The creditor must retain copies of the Closing Disclosure (and all documents related to the Closing Disclosure) for five years after consummation. Even if the creditor sells of its interest in the mortgage, it along with the new owner will be required to keep the copy of the Closing Disclosure for five years.
The creditor, or servicer if applicable, must retain the Post-Consummation Escrow Cancellation Notice (Escrow Closing Notice) and the Post-Consummation Partial Payment Policy disclosure for two years.
For all other evidence of compliance with the Integrated Disclosure provisions of Regulation Z (including the Loan Estimate) creditors must maintain records for three years after consummation of the transaction.
Regulations X and Z permit, but do not require electronic recordkeeping. Records can be maintained by any method that reproduces disclosures and other records accurately, including computer programs.
The 10% cumulative tolerance
Both forms are designed to give the consumer a clear picture of their loan costs and prevent creditors from over-charging them by the time the transaction closes. A strict 10% cumulative tolerance limit will be employed so that the actual costs of the transaction, stated in the Closing Disclosure, cannot exceed the good faith estimates provided in the Loan Estimate by more than 10%, except in specific circumstances. Furthermore, there are certain items which have zero tolerance and the creditor is not allowed to charge more than what was disclosed in the Loan Estimate.
Penalties for Non-Compliance
Instead of taking a per violation route, the CFPB has chosen to implement penalties on a per day basis. These penalties are also much heftier than those previously stated in the RESPA act. Creditors will be worst hit if they knowingly fail to comply with the Integrated Disclosure requirements. A summary of the penalties is listed below:
- “Knowing” violations — $1,000,000 per day
- “Reckless” violations — $25,000 per day
- Other violations — $5,000 per day
The TILA-RESPA rule will bring about a major shift in the mortgage servicing industry and creditors should prepare themselves for the upcoming changes. It is highly recommended to consult a legal expert on the changes and implement procedural changes wherever required.
Although TILA-RESPA will have a minimal impact on the real estate appraisal industry, it should serve as a warning for all mortgage industry players that more disclosures on the way and that they should get their processes in order so that they are better prepared for the changes ahead.
Listed below are some resources which should act as a starting point for anyone who wants to know more about the TILA-RESPA rule.