June 1, 2015

TILA-RESPA Integration Will Be Here In Two Months. Are You Ready?

As all mortgage lenders know by now, beginning August 1, the new TILA-RESPA integrated disclosure requirements will become effective for any lender that makes more than five mortgage loans in a calendar year.  With two months to go, now is a good time to make sure your institution is ready.
If you have been paying attention, you know that the rule covers much more than just two new disclosure forms.  This is a complex, substantive change in the law.   In fact, the CFPB has published hundreds and hundreds of pages of rules and guidance.  I am not going to attempt to describe the new rules in detail here. (The final rule alone is 1,888 pages.) Instead, I just want to point out a few things and recommend a checklist for assessing your progress as you prepare for the August 1 deadline.
First, as I am sure you know, the new Loan Estimate form combines two existing forms, the Good Faith Estimate (GFE) and the initial Truth-in-Lending disclosure into one form.  The Loan Estimate must be provided to an applicant (placed in the mail) no later than the third business day after he or she submits a loan application.  
When Is An Application "Complete"?

One thing I want to be sure you understand is that unlike under the current rules, after August 1, a loan application that you might otherwise consider "incomplete" may trigger the Loan Estimate obligation.

The rule defines a loan application as having six of the seven elements that RESPA required: consumer’s name, consumer’s income, consumer’s social security number to obtain a credit report, property address, estimate of the value of the property and mortgage loan amount sought. The definition in the rule does not include RESPA’s seventh, catch-all term “any other information deemed necessary by the loan originator.” So, while you used to be able to deem a loan application incomplete for purposes of RESPA if it lacked some additional information that you deemed necessary, you no longer have that discretion. 
Also be careful about this: An application must be in writing, but any written record of an oral conversation is sufficient to trigger the requirement.

Even if a complete application has not been received, it will be permissible to provide an "early written estimate."  You should, however, include a clear disclaimer on any such estimate.
Revised Disclosures

Sometimes, disclosures need to be revised.  If a revised disclosure is necessary, it must be received by the customer at least four business days prior to closing, which means that it if is mailed, it must be mailed seven business days before closing.
Did You Endorse That Service Provider?

Separate from the Loan Estimate is a required list of settlement services for which the customer can shop. You must identify at least one provider for each service. Do you have a policy for how you will identify these providers for each market area? How many will you list for each category? Are you going to vet them? If not, do you have a disclaimer ready? (Hint: the model form does not have one.)
Collecting Fees

There are also new restrictions on fees that can be collected prior to giving a Loan Estimate and prior to a consumer’s consent to proceed. For example, no fee other than a credit report fee can be collected prior to the Loan Estimate and consumer consent to proceed. 
Pre-Closing Disclosure
As most of you know, the other major document required by the new rules is the Closing Disclosure, which as you know, combines two existing forms, the HUD-1 Settlement Statement and final Truth-in-Lending disclosures, into one form, and must be provided to consumers at least three business days before closing the loan. 
Mistakes are going to happen, but if they are caught in time, they can be corrected.  The rule says you can retroactively cure violations by refunding the excess portion of a cost or fee to the consumer, and delivering corrected disclosures to reflect the refund, within 60 days after closing.  You’ll need to decide if you want to set up a post-consummation review process to ensure that you provide corrected Closing Disclosures to catch these and correct them.  
Additional Disclosures
Beyond the two primary disclosures, there are others to have ready by August 1:
  • the post-consummation escrow cancellation notice (aka "Escrow Closing Notice") 
  • the post-consummation mortgage servicing transfer
  • partial payment notice

Record Retention 
You probably need to update record retention policies as well.  
  • Keep a copy of the Closing Disclosure (and all documents related to the Closing Disclosure) for five years after consummation, even if you sell the loan and the servicing rights.
  • Keep 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) maintain records for three years after consummation of the loan.
  • Be sure you know when to use the new forms versus when to continue to use the existing disclosures (GFE, initial and final TIL, and the HUD-1)
    • Specifically, the TILA-RESPA rule does not apply to HELOCs, reverse mortgages or mortgages secured by a mobile home or by a dwelling that is not attached to real property (i.e., land). (§ 1026.19(e) and (f))
    • However, certain types of loans that are currently subject to TILA but not RESPA are subject to the new integrated disclosure requirements, including: construction-only loans, vacant-land loans, and loans secured by 25 acres or more.
  And Many More...
Here are a few things you’ll want to think about, such as the following: 
  • Do you have policies and forms for pre-consummation and post-consummation disclosures? 
  • Also, think about how a consumer will give the required indication of intent to proceed with a loan? Are you going to have a form?
  • How are you going to track the new tolerances?
In addition, I suggest you take a look at the Readiness Questionnaire in Part 2 of the CFPB’s Mortgage Rules Readiness Guide. I encourage you to work through the TILA-RESPA Integration section that begins on page 15 and ends on page 21.  This is not mandatory (and it has not been added to the Exam Manual), but it may be useful to help determine how ready you are and what you need to do next. 

My hope is that each of you reading this article will be buoyed with confidence that you are well-prepared for the August 1 compliance deadline, but if you are not, I hope this article will help you identify the areas that need work in the final days before implementation.


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