7 Facts about RESPA/TILA changes
An extensive makeover is in the works for The Real Estate Settlement Procedures Act of 1974 (RESPA) and The Truth in Lending Act (TILA) regulations which will go into effect October 3, 2015.
Initially RESPA laws were passed in 1974 as a consumer protection act for two distinct reasons:
- To help home buyers and sellers understand mortgage settlement costs.
- To safeguard consumers from unreasonably overstated charges and end abusive practices such as “kickbacks” leading to inflated settlement costs.
Federal law has required lenders to provide these disclosures to consumers for more than 40 years and the reality is they are often found to be complicated, containing overlapping and inconsistent language.
The Dodd-Frank Wall Street Reform and Consumer Protection Act was introduced in July 2010 to help overhaul our national regulatory system and reestablish balance in the financial services sector. This kind of government economic intervention has not occurred since The Great Depression of the 1930s.
The Consumer Financial Protection Bureau (CFPB) originated from this reform act intended to regulate RESPA and TILA and is behind the launch of the upcoming reforms to these regulations.
- The Good Faith Estimate and the initial Truth-in-Lending Act form will be replaced by the newly created Loan Estimate
- The lender must give this Loan Estimate to the buyer 3 days after submitting a loan application.
- The Loan Estimate has a Costs at Closing section to help borrowers compare loan terms amongst lenders including:
- The total interest to be paid over the term of the loan
- How much the borrower will pay in principal & interest over the first 5 years
- The HUD-1 Settlement statement and the final Truth-In-Lending Act statement will be replaced by the Closing Disclosure and will confirm the terms and figures from the Loan Estimate form.
- The Closing Disclosure must be delivered 3 days prior to closing. Sundays and legal public holidays are not counted in the 3 day period.
- These changes do not apply to home equity lines of credit, reverse mortgages, or mortgages secured by mobile homes.
- If a loan application is received prior to October 3, 2015 lenders will follow today’s current RESPA/TILA disclosure guidelines.
Integrated Disclosure Addendum-Mortgage
To ensure proper expectations are set between buyers and sellers the Massachusetts Association of Realtors has developed what they are calling a “Integrated Disclosure Addendum-Mortgage”. Having this document signed by both parties at time of offer execution is something we recommend.