The wait is over. The anxiety begins. On Wednesday, November 20, 2012, the CFPB released its final regulations requiring combined mortgage disclosure forms under the Real Estate Settlement Procedures Act and the Truth in Lending Act. With an effective date of August 1, 2015, mortgage companies and settlement companies have 20 months to implement new Loan Estimate and Closing Disclosure forms that will forever replace the GFE, initial and final TIL statements, and HUD-1.
What is immediately clear is that the forms themselves remain largely unchanged from the proposed Loan Estimate and Closing Disclosure. With hours of consumer testing to back the design and content of the forms, the CFPB generally made only minor clarifications to certain language used on the forms, with a few notable modifications. Those modifications, based on public reactions to the proposed forms, include:
• The bottom of the first page on both the final Loan Estimate and Closing Disclosure now contains a summary of “Closing Costs” and a summary of “Cash to Close.” The proposed forms included only a summary of Cash to Close, which purported to define the costs that comprised Closing Costs. The Cash to Close disclosure now more simply refers to the inclusion of Closing Costs without definition.
• The first page of the Closing Disclosure allows the disclosure of the sale price, appraised property value, or the estimated property value. The proposed Closing Disclosure form only permitted the disclosure of the sale price and appraised property value. This change to the final form will allow for more accurate disclosure when neither a sale price nor an appraised value is applicable in a transaction.
• The Partial Payments disclosure on page four of the Closing Disclosure includes three boxes to indicate whether the lender accepts and applies partial payments, accepts and holds partial payments, or does not accept partial payments. The middle box disclosing that the lender may accept partial payments and hold them in a suspense account is new. This modified disclosure on the final form will allow a more accurate disclosure of a lender’s practices regarding partial payments.
• The fifth page of the Closing Disclosure no longer includes the Approximate Cost of Funds disclosure. Frankly, consumers did not understand it, and neither did anyone else. Based on comments received, as well as consumer testing, the final form dropped this disclosure.
• The Closing Disclosure form now directs the consumer to generally use “the contact information” appearing on page five if the consumer has questions about the loan terms or costs appearing on the form. The proposed Closing Disclosure included language directing the consumer to contact the lender with questions about the terms or costs disclosed on the form. Recognizing that the lender may not be able to answer questions about fees and costs outside of its control, the final form provides a general reference to contact information, which discloses information for the lender, mortgage broker, real estate brokers, and settlement agent. Lenders should like that change.
Even though changes to the information contained on the new forms were not drastic, that did not stop the CFPB from issuing a new rule and an explanation of the new rule that is 1,888 pages long. We are in the process of reviewing and analyzing the new rule and plan to address the requirements and implications of the final regulations in more detail through a series of client alerts and a future webinar. Those client alerts will be posted to the Consumer Financial Services Watch blog. In the meantime, please contact Phillip L. Schulman, Jonathan Jaffe, Holly Spencer Bunting, David A. Tallman, or Kristie D. Kully with any questions about the final Loan Estimate and Closing Disclosure requirements.