On November 20, 2013, the Consumer Financial Protection Bureau (CFPB) released its final rule to combine overlapping federal disclosure forms required by the Truth in Lending Act (TILA) and Real Estate Settlement Procedures Act (RESPA).The CFPB's stated purpose of the new simplified mortgage disclosures is to make it easier for homebuyers to understand the terms of a mortgage, compare loan offers, and avoid “costly surprises” at closing.

Under the new rule, a new Closing Disclosure will replace the HUD-1 and final Truth in Lending (TIL) disclosure, and a Loan Estimate will replace the Good Faith Estimate (GFE) and early TIL. The new forms must be implemented by August 1, 2015. The rule is 1,888 pages long. While it will take some time to study, we have looked at some of the most significant issues and explained them below. The italicized text is directly from the CFPB rule.

Three-Day Rule

The creditor is required to provide the Closing Disclosure to the consumer at least three business days before the closing. The creditor is responsible for delivering the Closing Disclosure form to the consumer, but creditors may use settlement agents to provide the Closing Disclosure, provided that they comply with the final rule’s requirements for the Closing Disclosure. The final rule acknowledges settlement agents’ longstanding involvement in the closing of real estate and mortgage loan transactions, as well as their preparation and delivery of the HUD-1. The final rule avoids creating uncertainty regarding the role of settlement agents and also leaves sufficient flexibility for creditors and settlement agents to arrive at the most efficient means of preparation and delivery of the Closing Disclosure to consumers.

While the new rule imposes additional regulatory burdens on the lender for delivery of the Closing Disclosure, it does continue to provide that settlement agents can continue to prepare and deliver the closing document as they traditionally have. We view this as a good result, as the original proposal had an option that required that the Closing Disclosure be prepared and distributed by the creditor.

Re-disclosure and an Additional Three-Days

If the creditor makes certain significant changes – specifically if the APR increases 1/8 of one percent for most loans or ¼ of one percent for loans with irregular payments.

If the loan product changes or if a prepayment penalty is added to the loan then a new form and 3 day period is required.

Less significant changes can be disclosed on a revised Closing Disclosure provided at or before closing without delaying the closing.

We are concerned about the practical implication of this requirement.

Title Insurance Premiums are Not Part of the APR Calculation

We were concerned about a provision in the original proposal that would have required the disclosure of an “All-in APR.” That proposal was not adopted and as such, title insurance and its associated fees are not used in the calculation of the APR. ATG and the American Land title Association (ALTA) were concerned about the implications of that requirement. We argued that as title insurance is not necessarily a part of the loan transaction that it should not be included. The CFPB ultimately agreed.

Implementation

One of the more significant concerns was the timeframe that would be provided for implementation of the new rule. It will require significant changes to procedures and adjustments to existing technology. We are comfortable that the August 1, 2015 implementation deadline is sufficient to make necessary adjustments.

See the full report from the CFPB.

While the new rule poses some challenges for the title insurance industry and for ATG, we believe it will result in improvements in consumers’ ability to make informed decisions when shopping for title insurance and related products.

Watch for a more comprehensive article on the new rule after we have had a chance to fully review it. There will be other opportunities for more information, including a link to  ALTA's recent webinar on this topic when available.

ATG and ATG Trust Members: If you have questions, please feel free to contact us.

David S. Huffman
ATG Senior Vice President - Title Operations