New HUD Forms Improve Customer Understanding, Aid Comparison Shopping, and Help Prevent Surprises
The Consumer Financial Protection Bureau (CFBP) has issued the final rule for the new integrated mortgage disclosures, combining the overlapping disclosures required by the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA). The new rule will, once again, change the residential mortgage and closing markets as we know them.
The new rule was issued in November 2013, but does not become effective until August 1, 2015 and will apply to transactions for which a creditor or mortgage broker receives an application on or after that date. The new forms are available for viewing on the CFPB website.
As stated in the CFPB’s final rule, a new Loan Estimate form will replace the current Good Faith Estimate (GFE) an early TILA disclosure, and the new Closing Disclosure Statement will replace the HUD-1 and final TILA disclosure.
The new Loan Estimate will combine the disclosures currently provided in the Good Faith Estimate and the initial Truth in Lending Disclosure. Lenders must provide the Loan Estimate three business days after an application is submitted by a consumer.
The new, five-page Closing Disclosure Statement basically reorganizes all of the information now contained in the three-page HUD-1 Settlement Statement. The reason behind the new form is to make it easier to read and explain at the closing table. Of great significance is the fact that the Closing Disclosure Statement must be provided at least three business days before the closing. The CFPB will need to relax this requirement or lenders and closing agents will need to make significant changes in the way we do business today. It is currently not uncommon for the settlement statement to be finalized within hours of closing, certainly not three days prior to closing.
The good news is that the CFBP has listened to our industry and incorporated some important changes in the final rule. The CFBP first issued a proposal back in July 2012 which sought to integrate the mortgage disclosure requirements of the TILA and RESPA.
Overall, it appears that the new forms are an improvement to the existing forms. As with all changes, this is yet another one that we will need to accept and change our practices accordingly.
Advantage Title Group