Effective August 1, 2015, the Consumer Financial Protection Bureau (CFPB) has new rules that substantially amend components of the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA). These new rules fulfill the Dodd/Frank Act requirements for simplifying the required consumer disclosures with new, simpler disclosure forms. The simpler forms are designed to i) improve consumer understanding, ii) provide better comparison shopping, and iii) eliminate costly surprises at the closing table.
THE NEW “KNOW BEFORE YOU OWE” CLOSING FORMS
The Loan Estimate
- Replaces the early Truth in Lending (TIL) disclosure and Good Faith Estimate (GFE)
- Must be provided to consumers within three (3) business days after they submit a loan application
- Provides a summary of the key loan terms and estimated loan and settlement costs. Consumers can use this new form to compare the costs and features of different loans
The Closing Disclosure
- Replaces the final Truth in Lending Statement and the HUD-1 settlement statement
- This will be provided to consumers at least three (3) business days before consumers close on a loan.
- Summarizes the final loan terms and costs and provides consumers with a detailed accounting of their transaction. By providing consumers with the Closing Disclosure three business days before closing, consumers will have time to review their final loan terms and costs in an unpressured environment rather than at the closing table.
The CFPB has issued guidance regarding the new rules and has made it clear that it expects lenders to have an effective process for managing the risks of third-party services providers and will hold lenders liable for the failings of those service providers when appropriate. Lenders should have an effective process in place to limit the potential for regulatory violations and consumer harm by third party service provides, which should include:
- Conducting thorough due diligence to verify that the service provider understands and is capable of complying with Federal Consumer Protection law;
- Requesting and reviewing the service provider’s policies, procedures, internal controls and training materials to ensure that the service provider conducts appropriate training and oversight of employees or agents that have consumer contact or compliance responsibilities;
- Including in the contract with the service provider clear expectations about compliance, as well as appropriate and enforceable consequences for violating any compliance- related responsibilities, including engaging in unfair, deceptive, or abusive acts or practices;
- Establishing internal controls and on-going monitoring to determine whether the service provider is complying with Federal consumer financial law; and
- Taking prompt action to address fully any problems identified through the monitoring process, including terminating the relationship where appropriate.
WHAT IT MEANS FOR YOU
START NOW – familiarity with the new forms and development of a solid procedure for every real estate closing will be essential to a smooth and effective transition to the new closing process. While the 3 day requirement for the initial Loan Estimate is similar to the GFE, the new 3 day requirement for the Closing Disclosure will require Lenders to coordinate closely and work effectively with Settlement Agents to ensure deadlines are met. Closing procedures should be reviewed to ensure the timely exchange of information and timely completion of the Closing Disclosure Form.
Closing agents, title insurers and other third party service providers should have written policies and “best practices” in place. Develop a list of service providers that have “best practices” and conduct the required due diligence to ensure those service providers are compliance. Furthermore, develop a process for the continued monitoring to ensure service providers remain up to your standards.
HOW WE CAN HELP
Batson Nolan, PLC has a complete “best practices” in place and is certified by the American Land Title Association (ALTA) as a real estate title closing agent, to ensure that we meet the strict requirements of the CFPB. We are available to meet with your staff and provide a detailed review of the new closing disclosure forms, as well as to develop effective closing procedures that work for you.