Question: Why is this happening?
Answer: In the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), passed in 2010, Congress created the Consumer Financial Protection Bureau (CFPB). The CFPB became responsible for regulating the Real Estate Settlement Procedures Act (RESPA) and the Truth in Lending Act (TILA) and was given the task to combine the current disclosure forms required by RESPA and TILA. Enter the new TILA-RESPA Integrated Disclosures, called the "Loan Estimate" (LE) and "Closing Disclosure" (CD).
: What transactions does the new rule apply to?
Applies to most closed-end consumer credit transactions secured by real property i
- Purchase Money
- Construction-only loan
- Loans secured by vacant land or by 25 or more acre
- Credit extended to certain trusts for tax or estate purposes
Question: What transactions are excluded?
Creditors are exempt from providing the Loan Estimate and Closing Disclosure for these loans:
- Home Equity Line of Credit Loans
- Reverse Mortgages
- Mortgages secured by a mobile home or by a dwelling that is not attached to real property (i.e. land)
- Loans made by a person or entity that makes five or fewer mortgages in a calendar year
- Partial exemption for certain housing assistance programs
Question: What are the benefits of the new disclosures
Mortgages are complex transactions that may include risky features. Consumers currently receive a Good Faith Estimate (GFE) and a HUD-1 Settlement Statement with the terms and costs of the mortgage loan. The LE and CD replace these forms in an attempt to simplify and improve the mortgage process, while reducing consumer confusion.
Specific benefits of the new forms and rules include:
- The interest rate, monthly payments, and the total closing costs will be presented clearly on the first page, making it easier for consumers to compare mortgage loans and choose the one that is right for them
- More information about the costs of taxes and insurance, including how the interest rate and payments may change in the future.
- Warnings for consumers about features they may want to avoid, such as penalties for paying off the loan early or increases to the mortgage loan balance even if payments are made on time
- Making the cost estimates more reliable for services required to close a mortgage loan - for example, appraisal or pest inspection fees. The rule prohibits increases in charges from the lender (aka creditor), their affiliates, and for services for which the lender does not permit the consumer to shop unless a specific exception applies.