TILA-RESPA Integrated Disclosure Rule and How it Will Benefit Borrowers
Beginning October 3, 2015 the new TILA-RESPA Integrated Disclosure Rule will be implemented changing the way we have been conducting bank closings over the last several years. The new rule will replace the current Initial Good Faith Estimate as well as the HUD Settlement Statement and Truth In Lending Disclosure, both of which are received just before or at closing, with two new forms called the loan estimate and the closing disclosure.
The loan estimate and the closing disclosure have been created to ease the confusion borrowers may experience at closing in connection with their loan terms and the fees they are paying. The Consumer Financial Protection Bureau’s goal is to make the closing process smooth and easy to understand for the borrower. The borrower should be fully aware of all of the terms of their loan throughout the entire closing process.
The loan estimate form will replace the current good faith estimate. The borrower must receive this form within three days of submitting an application to the lender. This is a strict lender requirement. This form will advise the borrower of the lender and third-party fees associated with the loan. These may include appraisals, flood search fees, tax service fees, and title insurance. It will also provide the borrower’s interest rate, any possible prepayment penalties, and/or interest rate changes in the future.
Replacing the HUD and Truth In Lending Disclosure will be the closing disclosure form. Here the borrower will clearly see all costs associated with the closing paid by buyer and seller as well as the final loan terms including interest rate, monthly principal and interest payment, and escrow amount for real estate taxes and homeowner’s insurance.
The Consumer Financial Protection Bureau has found that borrowers who receive their documents for review prior to closing had a much clearer understanding of the fees and terms associated with their loan and were much less confused than those borrowers only receiving documents at closing. Therefore, the new closing disclosure form must be provided to the borrower at least three days prior to closing for review unlike the HUD and truth in lending disclosure which are currently provided just before or at closing.
Receiving this final form early will allow borrowers to feel as if the closing is a three-day process rather than a one- or two-hour rushed event. Borrowers will have the opportunity to review all of the terms and costs associated with their loan and an opportunity to flag and correct any errors they may find. This form will allow borrowers to play an active role in their closing and feel less overwhelmed.
How will this affect the lender’s attorney or closing agent? Although it is not a requirement, most lenders will choose to draw up the new documents themselves rather than have them prepared by the closing agent. The reason being that the new laws will hold the lender responsible for any errors in the forms. Penalties will go into effect immediately on October 3, 2015. Closing agents will be on board to assist the lender in obtaining all necessary and accurate fees.
Adam Leitman Bailey, P.C.’s settlement department is excited about the new procedures and forms and Adam Leitman Bailey, P.C. looks forward to providing borrowers with the ultimate closing experience.