iBig changes are in store for real estate closings in 2015 (we first wrote about it here). Now, lenders have some guidance from the Consumer Financial Protection Bureau (“CFPB”) as to how complete forms that will become mandatory in August 2015.
For over thirty years, federal law has required lenders to provide two different disclosure forms (the Truth in Lending Statement and Good Faith Estimate) to consumers applying for a mortgage. The law also has generally required two different forms (a final Truth in Lending Statement and a HUD-1 settlement statement) at or shortly before closing on the loan. The forms were developed separately by two different federal agencies, pursuant to two separate acts: the Truth in Lending Act (“TILA”) and the Real Estate Settlement Procedures Act of 1974 (“RESPA”).
In an effort to simplify the closing process and help consumers become more informed of their options and obligations, the Consumer Financial Protection Bureau has launched the “Know Before You Owe” campaign – an initiative aimed at reforming the mortgage market. Beginning in August 2015, the two sets of forms issued to consumers will be reduced and replaced with a Loan Estimate Form and Closing Disclosure. These new forms use clear language and are designed to make it easier for the consumer to understand key information, such as the interest rate, monthly payments, and closing costs of the loan.
CFPB’s recently-issued Guide to Forms (available here) provides originators with step-by-step instructions for completing the Loan Estimate and the Closing Disclosure and addresses situations that are expected to arise frequently. The 96-page guide should be reviewed by anyone who routinely participates in the mortgage closing process. The guide specifically states that it may be helpful for settlement service providers, software providers, secondary market participants, and other firms that serve as business partners to creditors.
The Know Before You Owe rules bring about numerous technical and substantive changes to the mortgage closing process. Now is the time for lenders to prepare for the new era of closings by participating in training, reviewing their internal processes, and speaking with an attorney about their new compliance responsibilities.
