TILA-RESPA INTEGRATED DISCLOSURE


Introduction

For more than 30 years, Federal law has required lenders to provide two different disclosure forms to consumers applying for a mortgage. The law also has generally required two different forms at or shortly before closing on the loan. Two different Federal agencies developed these forms separately, under two Federal statutes: the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act of 1974 (RESPA). The information on these forms is overlapping and the language is inconsistent. Not surprisingly, consumers often find the forms confusing. It is also not surprising that lenders and settlement agents find the forms burdensome to provide and explain. The Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act) directs the Consumer Financial Protection Bureau (the Bureau) to integrate the mortgage loan disclosures under TILA and RESPA sections 4 and 5. Section 1032(f) of the Dodd-Frank Act mandated that the Bureau propose for public comment rules and model disclosures that integrate the TILA and RESPA disclosures by July 21, 2012. The Bureau satisfied this statutory mandate and issued proposed rules and forms on July 9, 2012. To accomplish this, the Bureau engaged in extensive consumer and industry research, analysis of public comment, and public outreach for more than a year. After issuing the proposal, the Bureau conducted a largescale quantitative study of its integrated disclosures with approximately 850 consumers, which concluded that the Bureau’s integrated disclosures had on average statistically significant better performance than the current disclosures under TILA and RESPA. The Bureau has now finalized a rule with new, integrated disclosures (TILA-RESPA rule).1 The TILA-RESPA rule also provides a detailed explanation of how the forms should be filled out and used.

The first new form (the Loan Estimate) is designed to provide disclosures that will be helpful to consumers in understanding the key features, costs, and risks of the mortgage loan for which they are applying. The Loan Estimate must be provided to consumers no later than three business days after they submit a loan application. The second form (the Closing Disclosure) is designed to provide disclosures that will be helpful to consumers in understanding all of the costs of the transaction. The Closing Disclosure must be provided to consumers three business days before they close on the loan. The forms use clear language and design to make it easier for consumers to locate key information, such as interest rate, monthly payments, and costs to close the loan. The forms also provide more information to help consumers decide whether they can afford the loan and to compare the cost of different loan offers, including the cost of the loans over time. The Loan Estimate and Closing Disclosure must be used for most closedend consumer mortgages. Home equity lines of credit, reverse mortgages, or mortgages secured by a mobile home or by a dwelling that is not attached to real property (i.e., land) must continue to use current disclosure forms required by TILA and RESPA separately. The TILA-RESPA rule does not apply to loans made by persons who are not considered “creditors” because they make five or fewer mortgages as year. Generally, the Loan Estimate and Closing Disclosure require the disclosure of categories of information that will vary due to the type of loan, the payment schedule of the loan, the fees charged, the terms of the transaction, and State law provisions. The extent of these variations cannot be shown on a single, static example. This Guide includes most of the requirements concerning completing the Loan Estimate and Closing Disclosure. However, this Guide may not illustrate all of the permutations of the information required or omitted from the Loan Estimate or Closing Disclosure for any particular transaction. Only the TILA-RESPA rule and its official interpretations can provide complete and definitive information regarding its requirements.

Loan Estimate

Issuance and Delivery

You must provide a Loan Estimate to the consumer, either by delivering by hand or placing in the mail, no later than three business days of the receipt of an application. An application is considered received when the consumer provides the following information: § Consumer’s name, § Consumer’s income, § Consumer’s Social Security number to obtain a credit report, § Address of the property, § Estimate of the value of the property, and § The mortgage loan amount sought.

Revised Loan Estimate

When there is a changed circumstance after the Loan Estimate has been provided, the creditor can revise the Loan Estimate within three business days. A revised Loan Estimate generally can be provided no later than seven business days before consummation. (See section 2.1.5 below)

Use of Compliance Guide

Please see Compliance Guide, sections 6, 7, 8, and 9, for additional information on details of these requirements. The information that follows discusses how to complete the Loan Estimate. Samples of completed Loan Estimates can be found at consumerfinance.gov/regulatory-implementation/tila-respa/.

Rounding

Dollar amounts must be rounded to the nearest whole dollar where noted in the regulation. (§ 1026. 37(o)(4)) If an amount is required to be rounded but is composed of other amounts that are not required or permitted to be rounded, use the unrounded amounts in calculating the total and then round the final sum. Conversely, if an amount is required to be rounded and is composed of rounded amounts, use the rounded amounts in calculating the total. (Comment 37(o)(4)-2) Percentage amounts may not be rounded and should be shown up to two or three decimals, as needed, except where noted in the regulation. (§ 1026.37(o)(4)(ii)) If a percentage amount is a whole number, show the whole number only with no decimals. (§ 1026.37(o)(4)(ii); Comment 37(o)(4)(ii)-1).

Consummation

Consummation is not the same thing as closing or settlement. Consummation occurs when the consumer becomes contractually obligated to the creditor on the loan, not, for example, when the consumer becomes contractually obligated to a seller on a real estate transaction. (§ 1026.2(a)(13)) The point in time when a consumer becomes contractually obligated to the creditor on the loan depends on applicable State law. (§ 1026.2(a)(13); Comment 2(a)(13)-1) Creditors and settlement agents should verify the applicable State laws to determine when consummation will occur, and make sure delivery of the Loan Estimate occurs within three business days of the receipt of an application.

 

The point in time when a consumer becomes contractually obligated to the creditor on the loan depends on applicable State law. (§ 1026.2(a)(13); Comment 2(a)(13)-1) Creditors and settlement agents should verify the applicable State laws to determine when consummation will occur, and make sure delivery of the Loan Estimate occurs within three business days of the receipt of an application.

Good To Know
This Guide uses references to the legal obligation, which includes the promissory note plus any other agreements between the creditor and consumer concerning the extension of credit.

loan estimate

Page 1 of the Loan Estimate includes general information, a Loan Terms table with descriptions of applicable information about the loan, a Projected Payments table, a Costs at Closing table, and a link for consumers to obtain more information about loans secured by real property at a website maintained by the Bureau. Page 1 of the Loan Estimate includes the title “Loan Estimate” and a statement of “Save this Loan Estimate to compare with your Closing Disclosure.” (§ 1026.37(a)(1),(2)) The top of page 1 also includes the name and address of the creditor. (§ 1026.37(a)(3)) A logo or slogan can be used along with the creditor’s name and address, so long as the logo or slogan does not exceed the space provided for that information. (§ 1026.37(o)(5)(iii)) If there are multiple creditors, use only the name of the creditor completing the Loan Estimate. (Comment 37(a)(3)-1) If a mortgage broker is completing the Loan Estimate, use the name and address of the creditor if known. If not yet known, leave this space blank.

Date Issued

The date the Loan Estimate is mailed or delivered to the consumer. (§ 1026.37(a)(4)) Applicants Applicants includes the name and mailing address of the consumer(s) applying for the loan. Use each Applicant’s name and mailing address if there are multiple Applicants. An additional page may be added to the Loan Estimate if the space provided is insufficient to list all of the Applicants.

Property

Property is the address of the property (which must include the zip code) that will secure the transaction. If the address of the Property is unavailable, use a description of the location of the property, for example a lot number. Always use a zip code.  Personal property such as furniture or appliances that also secures the credit transaction may be, but is not required to be included as Property. An additional page may not be appended to the Loan Estimate to disclose a description of personal property.

Sale Price or Appraised Value or Estimated Value

If the loan is for a purchase money mortgage, use Sale Price. (§ 1026.37(a)(7)(i)) If personal property is included in the Sale Price of the Property, use that price without any reduction for the appraised or estimated value of the personal property.  If the loan is for a transaction without a seller, use Appraised Value or Estimated Value.

Loan Term

Loan Term is the term of the debt obligation. Describe the Loan Term as “years” when the Loan Term is in whole years. For example “1 year” or “30 years.”  For a Loan Term that is more than 24 months but is not whole years, describe using years and months with the abbreviations “yr.” and “mo.,” respectively. For example, a loan term of 185 months is disclosed as “15 yr., 5mo.” For a Loan Term that is less than 24 months and not whole years, use months only with the abbreviation “mo.” For example, “6 mo.” or “16 mo.”

Purpose

Describe the consumer’s intended use for the loan. (§ 1026.37(a)(9)) Purpose is disclosed using one of four descriptions: Purchase, Refinance, Construction, or Home Equity Loan.

  • Purchase is disclosed if the loan will be used to finance the Property’s acquisition.
  • Refinance is disclosed if the loan will be used for the refinance of an existing obligation that is secured by the Property (even if the creditor is not the holder or servicer of the original obligation).
  • Construction is disclosed if the loan will be used to finance the initial construction of a dwelling on the property disclosed on the Loan Estimate.
  • Home Equity Loan is disclosed if the loan will be used for any other purpose.

Product

Provide a description of the loan.  You are required to include two pieces of information in this disclosure: The first piece of information is any payment feature that may change the periodic payment, which includes Negative Amortization, Interest Only, Step Payment, Balloon Payment, or Seasonal Payment. (§ 1026.37(a)(10)(ii)) Additionally, the duration of the relevant payment feature must be disclosed with a Negative Amortization, Interest Only, Step Payment, or Balloon Payment.  For example, a payment feature where there is a five-year period during which the payments cover only interest, and are not applied to the principal balance, would be disclosed as a 5 Year Interest Only for the payment feature.

  1. Negative Amortization is when the principal balance of the loan may increase due to the addition of accrued interest to the principal balance. § Interest Only is when one or more regular periodic payments may be applied only to interest accrued and not to the principal of the loan.
  2. Step Payment is when the scheduled variations in regular periodic payment amounts occur that are not caused by changes to the interest rate during the loan term.
  3. Balloon Payment is when the terms of the legal obligation include a payment that is more than two times that of a regular periodic payment.
  4. Seasonal Payment is when the terms of the legal obligation expressly provide that regular periodic payments are not scheduled between specified unitperiods on a regular basis. For example, a “teacher” loan that does not require monthly payments during summer months has a Seasonal Payment.
  5. If the loan can be described with more than one of these descriptions, only the first applicable feature is disclosed. For example, a loan that would result in both Negative Amortization and a Balloon Payment would only disclose Negative Amortization as part of Product

The second piece of information disclosed is whether the loan uses an Adjustable Rate, Step Rate, or Fixed Rate to determine the interest rate applied to the principal balance.

  • An interest rate is an Adjustable Rate if the interest rate may increase after consummation, but the rates that will apply or the periods for which they will apply are not known at consummation. Each description must be preceded by the duration of any introductory rate or payment period, and the first adjustment period, as applicable. For example, a product with an introductory rate that is fixed for the first five years and adjusts every three years starting in year 6 is a 5/3 Adjustable Rate. When there is no introductory period for an Adjustable Rate, disclose “0.”  For example, a product with no introductory rate that adjusts every year after consummation is a 0/1 Adjustable Rate.
  • An interest rate is a Step Rate if the interest rate will change after consummation and the rates that will apply and the periods for which they apply are known at consummation. Each description must be preceded by the duration of any introductory rate or payment period, and the first adjustment period, as applicable. For example, a product with a step rate that lasts for ten years, adjusts every year for five years, and then adjusts every three years for the next 15 years is a 10/1 Step Rate.When there is no introductory rate for a Step Rate, disclose “0” and then the applicable time period until the first adjustment.
  • An interest rate is a Fixed Rate if the interest rate is not an Adjustable Rate or Step Rate. The following are examples of Product with both pieces of information included:
  • Year 7 Balloon Payment, 3/1 Step Rate: a step rate with an introductory interest rate that lasts for three years and adjusts each year thereafter until a balloon payment is due in the seventh year of the loan term.
  • 2 Year Negative Amortization: a fixed rate product with a step-payment feature for the first two years of the legal obligation that may negatively amortize. When the time periods disclosed in Product are not in whole years, for time periods of 24 months or more, disclose the applicable fraction of a year by use of decimals rounded to two places. For time periods of 24 months or less, disclose the number of months with the abbreviation “mo.” For example:
  • An Adjustable Rate Product with an introductory interest rate for 31 months that adjusts every year thereafter is a 2.58/1 Adjustable Rate.
  • An Adjustable Rate Product with an introductory interest rate for 18 months that adjusts every 18 months thereafter is an 18 mo./18 mo. Adjustable Rate.
  • Loan Type Loan Type is the type of the loan, such as Conventional or FHA. For Loan Type, disclose: Conventional if the loan is not guaranteed or insured by a Federal or State government agency,
  • FHA if the loan is insured by the Federal Housing Administration,
  • VA if the loan is guaranteed by the U.S. Department of Veterans Affairs, and § Other with a brief description if the loan is insured or guaranteed by another Federal or a State agency.
  • Loan ID# Loan ID # is the creditor’s loan identification number that may be used by a creditor, consumer, and other parties to identify the transaction. The Loan ID # may contain alpha-numeric characters and must be unique to the particular transaction. The same Loan ID # may not be used for different, but related, loan transactions (such as different loans to the same borrower). When a revised Loan Estimate is issued, the Loan ID # must be sufficient for the purpose of identifying the transaction associated with the initial Loan Estimate.
  • Rate Lock Indicate the rate is locked with Yes, indicate the rate is not locked with No. When the interest rate is locked at the time of the Loan Estimate’s delivery, the date and time (including the applicable time zone) when the lock period ends must be disclosed. The date and time (including the applicable time zone) at which the estimated closing costs expire must be disclosed on every Loan Estimate.

Loan Terms

Disclose in the Loan Terms table:

  • Loan Amount (if the amount is in whole dollars, do not disclose cents)
  • § Initial Interest Rate,
  • Initial Monthly Principal & Interest amount
  • Any adjustments to these amounts after consummation,
  • Whether the loan includes a Prepayment Penalty, and § Whether the loan includes a Balloon Payment.

Interest Rate & Monthly Principal & Interest

If the initial Interest Rate is not known at consummation, the fully-indexed rate is disclosed; a fully-indexed rate is the interest rate calculated using the index value and margin at the time of consummation. The initial principal and interest payment amount also would be calculated using the same fully-indexed rate. Adjustment to Loan Amount, Interest Rate, and Monthly Principal & Interest after consummation Under the subheading Can this amount increase after closing?, if the Loan Amount, Interest Rate, or Monthly Principal & Interest amounts can increase after consummation, disclose Yes where applicable with the information pertinent to the adjustment after consummation.

  • For an adjustment in Loan Amount, the creditor must also disclose the maximum principal balance for the transaction and the due date (expressed as the year or month in which it occurs, rather than an exact date) of the last payment that may cause the principal balance to increase, together with a statement whether the maximum principal balance may or will occur under the terms of the legal obligation.  The date disclosed is the year in which the event occurs, counting from the due date of the initial periodic payment.
  • For an adjustment in the Interest Rate, also disclose the frequency of interest rate adjustments, the date when the interest rate may first adjust, the maximum interest rate, and the first date when the interest rate can reach the maximum interest rate.  The date disclosed is the year in which the event occurs, counting from the date that interest for the first scheduled periodic payment begins to accrue after consummation. Also, disclose and reference the Adjustable Interest Rate (AIR) Table on page 2 of the Loan Estimate.
  • For an adjustment to the Monthly Principal & Interest, the creditor would also disclose the scheduled frequency of adjustments, due date of the first adjustment, and the maximum possible amount (and the earliest date it can occur) of the Monthly Principal & Interest. In addition, if there is a period during which only interest is required to be paid, also disclose that fact and thedue date of the last periodic payment of such period. The date disclosed is the year in which the event occurs, counting from the due date of the initial payment. (Also, disclose and reference the Adjustable Payment (AP) Table on page 2.  When the Loan Amount, Interest Rate, or Monthly Principal & Interest payment cannot increase after consummation, disclose No where applicable. (§ 1026.37(b)(6)) Prepayment Penalty and Balloon Payment A Prepayment Penalty is a charge imposed for paying all or part of a transaction’s principal before the date on which the principal is due. It does not include a waived third-party charge that the creditor imposes if the consumer prepays the loan’s entire principal sooner than 36 months after closing.  A Balloon Payment is a payment that is more than two times a regular periodic payment. Under the subheading Does the loan have these features?, when the loan has a Prepayment Penalty or a Balloon Payment disclose Yes, as applicable.  and (5)) When the answer is Yes to either, also disclose, as applicable: § The maximum amount of the Prepayment Penalty and the date when the period during which the penalty may be imposed terminates. For example, As high as $3,240 if you pay off the loan in the first two years. § The maximum amount of the Balloon Payment and the due date of such payment. For example, You will have to pay $149,263 at the end of year 7.

http://files.consumerfinance.gov/f/201503_cfpb_tila-respa-integrated-disclosure-guide-to-the-loan-estimate-and-closing.pdf

 

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