In November 2013 the Consumer Financial Protection Bureau (“Bureau”) issued the TILA-RESPA Integrated Disclosure final rule (“Rule”) to implement provisions under the Dodd Frank Wall Street Reform and Consumer Protection Act. The Rule was initially effective August 1, 2015, which date has been postponed until October 3, 2015. As detailed herein, the Rule includes both substantive and procedural requirements which alter the lender disclosure requirements for real estate transactions in New York, New Jersey and other states.
Among other things, the Rule replaces the Good Faith Estimate (GFE) and Initial Truth-in-Lending Disclosure with a “Loan Estimate” and replaces the Final Truth-in Lending disclosure and the RESPA HUD-1 with a Closing Estimate.
THE LOAN ESTIMATE
The Loan Estimate must contain general information related to the applicants, property, loan, and rate lock status; loan terms; projected payments during term of the loan; closing costs, including the total estimated closing costs and the estimated cash required to close. For the most part, the information in the Loan Estimate is the same as the information contained in the current GFE with the addition of the estimated “cash to close” item. A creditor must deliver or place the Loan Estimate in the mail no later than the third business day after the creditor receives the consumer’s application. The Loan Estimate figures must be made in good faith and consistent with the best information reasonably available to the creditor at the time disclosed. While certain charge are subject to change, generally the lender is bound by the numbers in the Loan Estimate to prevent any “surprises” at closing.
THE CLOSING ESTIMATE
The Closing Disclosure integrates and replaces the Final Truth-in Lending disclosure and the RESPA HUD-1. For the most part the Closing Disclosure contains the same information as the HUD-1 with the addition of information to show changes to costs and how the “cash to close” was calculated. A creditor/lender is generally responsible for ensuring that the borrower/consumer/buyer receives the Closing Disclosure no later than three business days before the closing. Lenders must re-disclose terms or costs on the Closing Disclosure if certain changes occur to the transaction that cause the disclosures to become inaccurate, such as if the APR changes, the loan product changes or a pre-payment penalty is added.
Generally speaking, if the amounts paid by the buyer at closing exceed the amounts initially disclosed by the lender on the Loan Estimate beyond the applicable tolerance threshold then the lender must refund the excess to the buyer and provide a corrected Closing Disclosure that reflects the refund, both within 60 days after closing.
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