TILA, or the Truth In Lending Act, is a federal American law that encourages the knowledgeable use of credit by consumers through sufficient disclosures about any terms and costs that are associated with borrowing that credit.
RESPA, or the Real Estate Settlement Procedures Act, requires that lenders provide simple and complete amounts of information at certain points in the loan process to help potential home owners make informed decisions.
On October 1 2015, new RESPA TILA regulations take effect, which consolidates four forms into the following two:
- Loan Estimate: This single form replaces the initial Truth-in-Lending Disclosure and the Loan Estimate forms. Buyers must receive the Loan Estimate document three days after their loan application.
- Closing Disclosure: This single form replaces the final Truth-in-Lending Disclosure as well as the HUD-1 Settlement statement. Lenders must provide this document to mortgage clients three business days before closing.
Every creditor or mortgage lender must provide these new, consolidated forms every time they receive an application from a consumer for a closed-end credit transaction, which is a transaction that must be paid in full including interest and other fees, and that is secured by real property on or after October 1, 2015. Before this date, clients will still receive the previous forms, such as the HUD-1.
However, the RESPA TILA 2015 changes will not apply to HELOC and reverse mortgages. It also does not apply to those loans made by someone who is not considered a lender (such as someone who makes five or fewer mortgages each year.) There are partial exemptions for those for low and moderate income consumers eligible for housing assistance loan programs.
Note that the upcoming RESPA TILA 2015 rule will contain certain restrictions on some activity before a client receives the Loan Estimate form. These restrictions will come into play on October 1, 2015 whether or not a client has sent in an application by that date. These activities include:
- Applying fees to clients before they have received the Loan Estimate form and indicated that they to continue with the transaction.
- Providing written estimates of any terms or costs specific to each client before they receive the Loan Estimate form without giving a written statement telling the client that the terms and costs may change
- Requiring that the documents verifying details related to the client’s loan application be submitted before giving the Loan Estimate form.
Why are the RESPA TILA 2015 changes taking place? Fewer forms should help consumers sift through the many details associated with the loan process, and simplified language on these forms will help consumers find and understand the complexities that can be associated with mortgages. Additionally, these consolidated forms will highlight the details most relevant to clients, including their interest rate, the amount of their monthly payments, as well as their closing costs – all on the first page. What’s more, clients will be advised that their interest rate, and consequently their future monthly payments, may change based on certain factors. Together, this information will help clients understand if a mortgage is affordable and how much money they need to save to complete the transaction.
For mortgage lenders, they will need to start changing their procedures for creating and providing the necessary documents to their clients with the correct information and within the specified loan process dates. Understanding the upcoming changes and being prepared will help mortgage lenders become compliant with federal regulations.
If you have any questions about these new RESPA TILA 2015 forms or have concerns about the required forms in your specific situation contact your lending professional.