Posted by: Ted Highland, National Training Manager
Updated: May 10, 2016
The Truth in Lending Act (commonly known as Federal Regulation Z) became operative on July 1, 1969. The purpose of this law, initially, was to promote the informed use of consumer credit by requiring lenders and others (including real estate agents) to make specified disclosures (TIL) on real estate credit transactions. It was first amended in 1970 to prohibit unsolicited credit cards. Additional revisions expanded the law significantly. Under Dodd-Frank, in 2011, enforcement of TILA came under the Consumer Financial Protection Bureau.
The Real Estate Settlement Procedures Act became operative on June 20, 1975. It originally was enforced by HUD and provided for two major areas of concern:
1) Disclosures regarding nature and costs in the real estate settlement process by delivery of a statutory form (commonly known as the HUD-1)
2) Prohibiting kickbacks in the settlement of real estate transactions.
It also was modified over the years beyond its original scope. In 1990, revisions involved disclosures regarding mortgage servicing. In 2008, a new closing costs estimate form (GFE) was introduced. And, in 2011, responsibility for enforcement of RESPA was transferred from HUD to the Consumer Financial Protection Bureau (CFPB).
Under these two laws, consumers received different and overlapping federally required disclosure forms. A total of four forms were required: an initial Truth-in-Lending (TIL) form and a final Truth-in-Lending form, a Good Faith Estimate (GFE) form, and a Settlement Statement (HUD-1) form. The original purpose of these forms was to make certain information more understandable to consumers. But, these forms have proven confusing for many consumers.
The Consumer Financial Protection Bureau has proposed an effective date for the changes of October 3, 2015. Public comments can be made until July 7. Keep watching this page for the latest information. The new TILA-RESPA Rule will replace the four current forms with two new forms. The Loan Estimate, given three business days after a loan application is received by a lender, will replace the initial TIL and the GFE. The Closing Disclosure, given three business days before closing, will replace the HUD-1 and the final TIL. This change will reduce paperwork and hopefully consumer confusion. It should be noted that the CFPB has provided a 91-page guide, titled “TILA-RESPA Integrated Disclosure Rule,” to explain the new simpler forms and procedures.
The new Loan Estimate form will highlight the information that has been the most important to consumers historically. Interest rate, monthly payment, and total closing costs will be clearly presented on the first page. This will make it easier for consumers to compare mortgage loans and choose the one that is right for them.
The new Closing Disclosure form will also provide more information about the costs of taxes and insurance and how the interest rate and payments may change in the future. It will also warn consumers about things they may want to avoid, like prepayment penalties. This information may help the consumer decide whether they can afford the home now, as well as in the future.
Following are links to examples of the two new forms:
Sample Loan Estimate Form
Sample Closing Disclosure Form
The full text of the TILA-RESPA rule is 1,800 pages. Obviously, this article is not intended to make experts out of its readers, but rather to introduce them to these upcoming changes. For those who would like more information (including viewing the actual forms and being provided with detailed, illustrated instructions on completing the forms), there is a link provided below that will take you to a CFPB web page. Included on this webpage are video webinars that address the implementation of the new rule.
Consumer Financial Protection Bureau TILA-RESPA Rule Resources