Is your financial institution ready to implement the new Truth-in-Lending Act/Real Estate Settlement Procedures Act (TILA-RESPA) Integrated Mortgage Disclosures Rule? If not, you’re not alone.
A survey conducted earlier this year by the American Bankers Association had revealed that more than 50 percent of banks were unsure their mortgage systems would be ready by July 1, 2015—just a month prior to the original effective date of Aug. 1 for the integrated disclosures. This left too little time to train employees and test bank protocol on the new systems to ensure compliance with the Consumer Financial Protection Bureau’s (CFPB) new Integrated Disclosures rules and regulations.
Luckily for creditors, CFPB Director Richard Cordray formally delayed such compliance until Oct. 3, 2015. But whatever the reason for the lack of readiness, banks still must work quickly in order to be fully compliant once this new effective date arrives.
The Marriage of Four Forms into Two
The Dodd-Frank Act directed the CFPB to integrate the mortgage loan disclosures under TILA and RESPA. The TILA-RESPA rule contains new requirements and two new disclosure forms that consumers will receive in the process of applying for closed-end mortgage loans.
The first document is the Loan Estimate, which combines two existing forms, the Good Faith Estimate (GFE) and the Initial Truth-in-Lending disclosure (initial TIL), into one form. The Loan Estimate must be provided within three business days of receiving an application and becomes the basis on which to judge the “good-faith actions” of the creditor. The second document is the Closing Disclosure, which also combines two existing forms, the Settlement Statement (HUD-1) and the final Truth-in-Lending disclosure (final TIL), into one form. The Closing Disclosure must now be received by the consumer three business days prior to consummation.
While delivery of the Loan Estimate remains similar to existing rules and regulations, the delivery of the Closing Disclosure is new. This is a change for which financial institutions will need to ensure proper conformance. Further, bankers need to be aware that new tolerance levels also were created to ensure good-faith actions.
What Exactly Are Good-Faith Actions?
Good-faith actions are determined by calculating the difference between the estimated charges originally provided in the Loan Estimate and the actual charges paid by or imposed on the consumer in the Closing Disclosure. Generally, if charges exceed the amount originally disclosed on the Loan Estimate, it is not in good faith, regardless of whether the creditor later discovers an error. However, if charges are less than the amount disclosed on the Loan Estimate, it is considered to be in good faith. This is important to note, because in this instance, it may mean a refund to the consumer.
Many banks rely on mortgage brokers to provide the current GFE and initial TIL, or now, the Loan Estimate. Rules and regulations continue to allow mortgage brokers to provide the Loan Estimate. However, financial institutions need to be aware that they are legally responsible for any errors contained within the Loan Estimate provided. Thus, it is critical that lenders understand the processes and procedures employed within their institutions.
Seven Questions You Must Consider
Therefore, to ensure compliance with the new TILA-RESPA Integrated Disclosures, bankers should, at a minimum, consider the following:
- What arrangements, agreements or contracts exist with vendors and other service providers related to mortgage products or servicing?
- What controls need to be established to satisfy the timing and method of delivery requirements (including retention), as well as the content of disclosures to determine good faith?
- What automated platforms need to be updated?
- What type of training needs to be administered, and to whom?
- Has the compliance and/or audit department reviewed the disclosures and any new policies and procedures?
- What monitoring or testing is planned to confirm practices conform to the new standards?
- Have any risk assessments been updated to reflect regulatory changes?
Considering these simple questions will help ensure compliance with the newly established deadline, if you’re not already in conformance with the integrated disclosures. Remember, you have until Oct. 3, but that’s less than two months away. Keith E. Monson serves as chief risk officer for Computer Services, Inc. (CSI). In this role, Keith maintains focus on CSI’s compliance initiatives to establish and build out an enterprise-wide compliance framework for risk assessment and reporting, issue management and other key components of CSI’s corporate compliance program. He also works closely with CSI’s Board of Directors Audit Committee as well as other compliance teams across the organization to promote a culture of engagement and connectivity while implementing and advising on practices and related standards.