Overview of the tila-respa rule
Terms in this set (16)
Integrated morgage disclosure loan
integrated mortgage disclosure forms combine the disclosures required by the Truth-in-Lending Act (TILA) with the good faith estimate, the special information booklet, and the HUD-1 or HUD-1A settlement statement required by Sections 4 and 5 of the federal Real Estate Settlement Procedures Act of 1974 (RESPA).
These new integrated forms use clear language and design to make it easier for borrowers to locate key information, such as interest rate, monthly payments, and costs to close the loan. The forms also provide more information to help borrowers decide whether they can afford the loan and to compare the cost of different loan offers, including the cost of the loans over time.
TILA-RESPA rule defines "application" for purposes of Regulation Z as the submission of a borrower's financial information for the purposes of obtaining an extension of credit. For loan applications submitted in the anticipation of obtaining a federally related mortgage loan, six elements are required.
business day" varies from form to form, and from use to use. Sometimes Saturday is counted as a business day, but sometimes it is not. For purposes of timing the delivery of the Loan Estimate, the general definition of business day is used. However, the specific definition of business day applies to the right of rescission and for counting both the 3- and 7-day waiting periods.
The finance charge is "the cost of borrower credit as a dollar amount. It includes any charge payable directly or indirectly by the borrower and imposed directly or indirectly by the lender as an incident to or a condition of the extension of credit". [12 CFR §1026.4(a)].
TILA-RESPA rule defines a prepayment penalty as 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 lender imposes if the borrower prepays the loan's entire principal sooner than 36 months after closing
For closed‐end credit transactions secured by real property (other than reverse mortgages), the lender is required to provide the borrower with good‐faith estimates of credit costs and transaction terms on a new form called the Loan Estimate.
The Loan Estimate replaces the Good Faith Estimate (GFE) designed by HUD under RESPA and the "early" Truth in Lending disclosure designed by the Board of Governors of the Federal Reserve System Board under TILA.Requirements for Loan Estimates
7 day waiting period
The timing requirements for this document are consistent with the current disclosures. The lender is generally required to provide the Loan Estimate within 3 business days of the receipt of the borrower's loan application. Lenders must allow applicants to have a 7-business day waiting period after mailing or delivering the Loan Estimate prior to closing the loan.
enders must ensure that the figures stated in the Loan Estimate are made in good faith and are consistent with the best information reasonably available to the lender at the time they are disclosed. (12 CFR§ 1026.19(e)(3)].
Whether a Loan Estimate was made in good faith is 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 borrower in the Closing Disclosure. The TILA-RESPA rule imposes a general rule that the estimated charges are not in good faith if the charges paid by or imposed on the borrower exceed the amounts originally disclosed. However, a Loan Estimate is considered to be in good faith if the lender charges the borrower less than the amount disclosed on the Loan Estimate, without regard to any tolerance limitations. [12CFR §1026.19(e)(3)(i-ii)].
10% cumulative tolerance
Charges Subject to a 10% Cumulative Tolerance
Charges for third-party services and recording fees paid by or imposed on the borrower are grouped together and subject to a 10% cumulative tolerance. This means the lender may charge the borrower more than the amount disclosed on the Loan Estimate for any of these charges so long as the total sum of the charges added together does not exceed the sum of all such charges disclosed on the Loan Estimate by more than 10%.
For purposes of a revised Loan Estimate, changed circumstances can affect the settlement charges or the borrower's eligibility.
Changed Circumstance Affecting Settlement Charges
An extraordinary event beyond the control of any interested party or other unexpected event specific to the borrower or transaction.
Information specific to the borrower or transaction that the lender relied upon when providing the Loan Estimate and that was inaccurate or changed after the disclosures were provided.
New information specific to the borrower or transaction that the lender did not rely on when providing the Loan Estimate. [12 CFR §1026.19(e)(3)(iv)(A)(1-3)].
Changed Circumstance Affecting Eligibility
A change in circumstances due to the borrower's eligibility for specific loan terms may require the lender to revise the Loan Estimate.
Closing disclosure forms
For loans that require a Loan Estimate and that go to closing, lenders must provide borrowers with a new final disclosure reflecting the actual terms of the transaction called the Closing Disclosure. The Closing Disclosure Form integrates and replaces the existing HUD‐1 and the final TILA disclosure. [12 CFR §1026.19(f) and 1026.38]. The Closing Disclosure contains general requirements, integrates sample disclosure forms, and contains additional disclosure information.
Consummation may occur at the same time as settlement (closing), but it is a legally distinct event. Consummation occurs when the borrower becomes contractually obligated to the lender on the loan, not, for example, when the borrower becomes contractually obligated to a seller on a real estate transactio
Model Closing Disclosure Forms
As is the case for the Loan Estimate, the CFPB created sample Closing Disclosure Forms for different mortgage transaction scenarios, including closing on a fixed-rate loan, closing with funds from a simultaneous second-lien loan, closing on a refinance transaction, and closing on transactions with various changes in closing costs.
The new five-page Closing Disclosure Form integrates at least nine pages of new and existing disclosures under RESPA, TILA, and Dodd-Frank amendments to TILA. The Closing Disclosure must be in writing and contain the information prescribed in 12 CFR §1026.38(a) through (s) as shown in Model Form H-25.
Escrow closing notice
The Escrow Closing Notice applies to closed-end borrower credit transactions secured by a first lien on real property or a dwelling. The term "dwelling" uses the existing definition in Regulation Z that includes vacation, second homes, and manufactured homes.
Importantly, the final rule does not affect when an escrow account (also called an 'impound' or 'trust' account) is required on a particular loan. Rather, the new disclosure is required when an escrow account will be cancelled.
Timing for escrow notice
The timing for the Escrow Closing Notice depends on whether the borrower has requested the escrow cancellation. If the borrower has requested the cancellation, the lender must provide the Escrow Closing Notice within 3 business days of the request. However, if the escrow cancellation is not at the borrower's request, the lender must ensure the borrower receives the Escrow Closing Notice at least 30 business days before the closure of the borrower's escrow account
Tila respa rule
In addition, the CFPB issued the TILA-RESPA rule amending Regulation Z (Truth in Lending Act) and Regulation X (Real Estate Settlement Procedures Act) to integrate mortgage loan disclosures.