The 2015 Truth in Lending Act Amendment – A Primer

The 2015 Truth in Lending Act Amendment – A Primer

The 2015 Truth in Lending Act Amendment – A Primer

Looking to make sense of the recent TILA-RESPA October 2015 amendments? Here is what you need to know, as a real estate professional.

The Truth In Lending Act was established 30 years ago and governed mortgage loan disclosure procedures. New rules regarding procedures set forth by the Truth In Lending Act (TILA) and Real Estate Settlement Procedures Act (RESPA) went into effect on October 3, 2015. The rules combined provisions previously set forth by both acts and combine rules regarding mortgage disclosures.

The new guidelines are published in a document that encompasses nearly 2,000 pages and affects every agency that deals with mortgage loans, from banks and brokers, to real estate agents and borrowers. Although many residential real estate professionals do not have time to sift through this cumbersome document, it is still important that you’re aware of what has been updated in the amendments. Particularly, real estate agents should be aware of three areas in order to help clients navigate the mortgage loan process.

About the Amendment

The new amendment, which went into effect on October 3, combines four existing mortgage disclosures that are required to be provided to borrowers by the Truth In Lending Act and the Real Estate Settlement Procedures Act. These disclosures must be provided for closed-end credit transactions that are secured by real property.

    • The Loan Estimate – The Good Faith Estimate and Initial Truth-in-Lending Disclosures will be combined and replaced by a document called the Loan Estimate.
    • The Closing Disclosure Form – The HUD-1 Settlement Statement Form and the final Truth-in-Lending Disclosure Form are being combined into a single five-page Closing Disclosure Form. These changes were designed to cut down on paperwork and processing time and give borrowers a more concise set of documents, explaining their rights and obligations as it pertains to the mortgage loan and repayment process.

One other important note involves mortgage loans for construction-only or loans that are secured by vacant land or a parcel of 25 acres or more. While in previous years these loans were not subject to RESPA provisions – but fell under TILA guidelines – they now fall under the new rules, and agents should pass this information on to buyers.

Exclusions

Some types of real estate loans are excluded from the new procedures. Home Equity Lines of Credit (HELOC), reverse mortgage loans, mortgage loans that are secured by a mobile home, and mortgage loans that are not secured by a dwelling or other structure are all exempt from the new procedures. Also, any creditor that writes less than five mortgages per year is exempt from the new procedures. Some mortgage loans that involve housing assistance for low income consumers will be partially exempt from the new rules, as well.

Important Process Changes

While there are several other notable changes, the following list are the changes that most often apply to real estate agents. Offices should identify which items apply to daily operations and plan to make the changes immediately. Staff members should also be trained on the new procedures to ensure a seamless transition for their respective organizations, as well as a smooth process for borrowers.

The following process changes are important to note:

    • Updated Loan Estimate Timeline – Loan Estimate disclosures must be provided to the borrower no later than the third business day after the borrower applies for the mortgage loan.
    • Updated Disclosure Timeline – Closing Disclosures must be provided at least three business days prior to loan closing.
    • New Definition for Loan Applications – The definition of what constitutes a loan application has changed, so agents should educate themselves on this new definition. Most specifically, the seventh catch-all item has been eliminated.
    • Rounding Up Estimate Fees – Loan Estimate Fees will now be rounded to the nearest dollar, to make things easier on the borrower.
    • Closing Disclosure Changes – If the Annual Percentage Rate changes or the lender adds a prepayment penalty to the loan, the borrower must receive an updated Closing Disclosure form. This, in turn, means that another three-day waiting period must take place between the delivery of this disclosure and the loan closing.
    • New Responsibilities – The lender will now be responsible for preparing the Closing Disclosure form. This form was formerly prepared by a settlement agent and provided to buyers at closing.

While it still early to predict the full impact the the recent changes to TILA will have on loan closings, by all indications they will positively impact each party involved in the closing process, i.e., the borrower will benefit from greater transparency and real estate professionals should benefit from a more streamlined process. This underscores the importance of familiarising yourself with these changes.

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