As a product of the Dodd-Frank Act, the Consumer Financial Protection Bureau, a federal agency responsible for consumer protection in the financial sector, was charged with proposing for public comment, rules and model disclosures that integrate the TILA (Truth in Lending Act) and RESPA (Real Estate Settlement Procedures Act) by July 21, 2012. The CFPB did just that, and, as a result, as of August 1, 2015, residential real estate closings won’t feel the same as before because that day the new TILA-RESPA rule will take effect.
The new rule is very intricate and this is not the forum to go into detail but let me point out some changes taking effect with the new rule. There will be several different new documents introduced with this rule. The first new form will be the Loan Estimate. 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 and a revised Loan Estimate, if necessary, generally can be provided no later than seven business days before Consummation (as defined below). Another new form is the Closing Disclosure. This form is designed to provide disclosures that will be helpful to consumers in understanding all of the costs of the transaction. This form must be provided to consumers three business days before Consummation.
As mentioned above, another seemingly small, yet significant change that will take place is the creation of the “Consummation” date. Consummation is defined as the point in time at which the consumer becomes obligated to the creditor on the loan. This is not to be confused with the point in time at which the consumer becomes contractually obligated to a seller on the real estate transaction. This change is significant because the delivery of the above mentioned documents will be impacted as to when the Consummation takes place. The date of the Consummation depends on applicable state law.
The new rule does not apply for Home Equity lines of credit, reverse mortgages, or mortgages secured by a mobile home or a dwelling that is not attached to real property, nor does it apply to loans made by persons who are not considered “creditors” because they make five or fewer mortgages a year. This is truly a new era in residential real estate “closings.” I encourage anyone who this would affect to review the following page and associated documents to fully understand the new TILA-RESPA rule.