United States

RESPA/TILA integrated disclosures proposal


The Consumer Financial Protection Bureau (CFPB) issued a proposed rule to combine and replace certain mortgage disclosure forms currently required under Regulations X and Z, the Real Estate Settlement Procedures Act (RESPA) and the Truth in Lending Act (TILA). The CFPB intends to replace the confusion and redundancy of the current disclosures, with a format that uses plain language and highlights important terms.

The Loan Estimate Disclosure is three pages and replaces the Good Faith Estimate and Early Truth in Lending Disclosure. Similar to the current rules, the proposal requires consumers be provided the disclosure within three days of loan application. The Closing Disclosure is five pages and would replace the HUD-1 Settlement Statement and Final Truth in Lending disclosure. The proposal includes a requirement that the Closing disclosure be provided at least three days prior to closing. A side by side comparison of existing and proposed forms is available.

Existing disclosure requirements under RESPA and TILA do not apply consistently to all mortgage loans. While some mortgage transactions are currently covered under both regulations, other transactions are covered by one act but excluded from the other. The proposed rule would provide uniformity in application of the disclosures and applies to most closed-end consumer mortgages. Home-equity lines of credit, reverse mortgages or mortgages secured by a mobile home or by a dwelling that is not attached to real property (land) would be excluded from the proposed disclosure requirements. Additionally, a safe harbor is under consideration to exclude creditors who originate five or fewer mortgage loans in a year from compliance with the rule.

In addition to the disclosures themselves, the proposal includes the following provisions which the CFPB is seeking comment on:

  • A revision to the definition of application which substantially eliminates the catch-all clause of “any other information deemed necessary by the loan originator.” The definition would retain the first six elements under RESPA including borrower’s name, monthly income, social security number, the property address, an estimate of the value of the property, and the mortgage loan amount sought.
  • An expansion of the definition of finance charge which would alter the calculation of the annual percentage rate (APR). The term finance charge would be broadly defined as a fee which is paid by the consumer and imposed by the creditor. The term would continue to exclude fees or charges paid in comparable cash transactions as well as late fees and similar default or delinquency charges, seller’s points, etc. The revised definition would apply to all closed-end transactions secured by real property or a dwelling.
  • A provision which expands the number of settlement costs that cannot increase from amounts estimated in the early disclosures. Under the new proposal, the zero tolerance category is applied to a larger range of charges, including charges paid to nonaffiliated third party service providers, if the creditor does not permit the consumer to shop for those services.
  • A requirement that a revised closing disclosure be issued and a new three-day waiting period be triggered if certain changes occur following the issuance of the original closing disclosure. This requirement is similar to the current rule under Regulation Z in that if the early disclosures contain an APR that is no longer accurate, a corrected disclosure needs to be given three business days before consummation. CFPB is seeking comment on a number of exceptions to the three-day review requirement currently under consideration.
  • Two alternatives have been proposed for providing the closing disclosure. Under the first option, the lender would be responsible for delivering the Closing Disclosure form to the consumer. Under the second option, the lender may rely on the settlement agent to provide the form; however, the lender would remain responsible for the accuracy of the form.
  • A provision that would require lenders to keep records of the Loan Estimate and Closing Disclosure forms provided to consumers in a standard electronic format and expand the retention period under TILA to five years as currently required under RESPA.

The CFPB is accepting comments regarding the proposed changes until Nov. 6, 2012. Access the full proposal.

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Kelly Housh
Regulatory Compliance National Support
Minneapolis, MN


Ty Beasley
Regulatory Compliance National Leader
Dallas, TX