1. Introduction For more than 30 years, federal law required lenders to provide two different disclosure forms to consumers applying for a mortgage. The law also generally required two different forms at or shortly before closing on the loan. Two different federal agencies developed these forms separately, under two federal statutes: the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act of 1974 (RESPA). The information on these forms was overlapping, and the language inconsistent. Consumers often found the forms confusing, and lenders and settlement agents found the forms burdensome to provide and explain. The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) directed the Consumer Financial Protection Bureau (Bureau) to integrate the mortgage loan disclosures under TILA and RESPA Sections 4 and 5. Section 1032(f) of the Dodd-Frank Act mandated that the Bureau propose for public comment rules and model disclosures that integrate the TILA and RESPA disclosures by July 21, 2012. The Bureau satisfied this statutory mandate and issued proposed rules and forms on July 9, 2012. To accomplish this, the Bureau engaged in extensive consumer and industry research, analysis of public comment, and public outreach for more than a year. After issuing the proposal, the Bureau conducted a large-scale quantitative study of its proposed integrated disclosures with approximately 850 consumers, which concluded that the Bureau’s integrated disclosures had on average statistically significant better performance than the pre-existing disclosures under TILA and RESPA. On December 31, 2013, the Bureau published a final rule with new, integrated disclosures – “Integrated Mortgage Disclosures Under the Real Estate Settlement Procedures Act (Regulation X) and the Truth In Lending Act (Regulation Z)” (TILA-RESPA Final Rule). On January 20, 2015 and July 21, 2015, the Bureau issued amendments to the TILA-RESPA Final Rule. Additionally, the Bureau published technical corrections on December 24, 2015, and a
correction to supplementary information on February 10, 2016. On July 7, 2017, the Bureau issued further amendments intended to formalize guidance, and provide greater clarity and certainty (2017 TILA-RESPA Rule or 2017 amendments).1 The 2017 amendments were published in the Federal Register on August 11, 2017. The TILA-RESPA Final Rule, the amendments, and corrections are collectively referred to as the TILA-RESPA Rule in this Guide. The TILA-RESPA Rule provides a detailed explanation of how the forms should be filled out and used. The Good Faith Estimate (GFE) and the initial Truth-in-Lending disclosure (initial TIL) were combined into a single form, the Loan Estimate. Similar to those forms, the Loan Estimate form 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, and must be provided to consumers no later than the third business day after they submit a loan application. Second, the HUD-1 and final Truth-in-Lending disclosure (final TIL and, together with the initial TIL, the Truth-in-Lending forms) were combined into another form, the Closing Disclosure, which 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 at least three business days before consummation of the loan. The forms use clear language and design to make it easier for consumers to locate key information, such as interest rate, monthly payments, and costs to close the loan. The Loan Estimate and Closing Disclosure forms also provide more information to help consumers decide whether they can afford the loan and to facilitate comparison of the cost of different loan offers, including the cost of the loans over time. The TILA-RESPA Rule applies to most closed-end consumer mortgages. It does not apply to home equity lines of credit (HELOCs), reverse mortgages, or mortgages secured by a mobile home or by a dwelling (other than a cooperative unit) that is not attached to real property.2 Itdoes not generally apply to loans made by persons who are not considered “creditors” under TILA.3 Generally, the TILA-RESPA Rule’s provisions were effective on October 3, 2015. The December 2015 corrections were effective on December 24, 2015, and the February 2016 corrections were effective on February 10, 2016. The 2017 amendments are effective and will be incorporated into the Code of Federal Regulations on October 10, 2017. However, compliance with the 2017 amendments is not mandatory on the effective date. Generally, compliance with the amendments is only mandatory for transactions for which a creditor or mortgage broker receives an application on or after October 1, 2018. However, the requirements for the Escrow Cancellation Notice (Escrow Closing Notice) and Mortgage Servicing Transfer Notice Partial Payment Policy Disclosure (Partial Payment Policy Disclosure) provided post-consummation apply starting October 1, 2018 without regard to when the creditor or mortgage broker receives the application. The 2017 amendments include an optional compliance period, which begins on October 10, 2017 and is for transactions for which a creditor or mortgage broker receives an application prior to October 1, 2018. During this period, early compliance with the 2017 amendments is allowed, but not required. Additionally, if a creditor or mortgage broker receives an application prior to October 1, 2018, optional compliance continues to apply to that transaction after October 1, 2018 (except as noted regarding the Escrow Closing Notice and Partial Payment Policy Disclosures). During the optional compliance period (beginning on October 10, 2017 and for transactions with applications received prior to October 1, 2018), the provisions of the 2017 amendments can be implemented all at once or phased in over this period. For example, if a creditor chooses to phase in the 2017 amendments, those changes can be phased-in over the course of a transaction or by application date. Notwithstanding this flexibility, a person cannot phase in the 2017 amendments in a way that would violate provisions of Regulation Z that are not being changed.4 The information provided in this Guide incorporates the changes and clarifications from the 2017 amendments, and explains the TILA-RESPA Rule as of the mandatory compliance date on October 1, 2018. To understand the rule as it existed prior to the 2017 amendments, please review version 4.0 of the Guide, available on the Bureau’s website at https://www.consumerfinance.gov/policy-compliance/guidance/implementationguidance/tila-respa-disclosure-rule/.
1.1 What is the purpose of this guide? The purpose of this Guide is to provide an easy-to-use summary of the TILA-RESPA Rule. This Guide also highlights issues that small creditors, and those that work with them, might find helpful to consider when implementing the TILA-RESPA Rule. This Guide also meets the requirements of Section 212 of the Small Business Regulatory Enforcement Fairness Act of 1996, which requires the Bureau to issue a small-entity compliance guide to help small entities comply with these new regulations. You may want to review your processes, software, contracts with service providers, or other aspects of your business operations in order to identify any changes needed to comply with this rule. Changes related to this rule may take careful planning, time, or resources to implement. This Guide will help you identify and plan for any necessary changes. To support rule implementation, the Bureau continues to coordinate with other agencies, publish and update plain-language guides, and publish updates to the Official Interpretations, if needed.
This Guide summarizes the TILA-RESPA Rule, but it is not a substitute for the rule. Only the rule and its Official Interpretations (also known as commentary) can provide complete and definitive information regarding its requirements. The discussions below provide citations to the sections of the TILA-RESPA Rule on the subject being discussed. Keep in mind that the Official Interpretations, which provide detailed explanations of many of the TILA-RESPA Rule’s requirements, are found after the text of the rule and its appendices. The interpretations are arranged by rule section and paragraph for ease of use. The 2013 Final Rule and the Official Interpretations, and related corrections and amendments, are available at www.consumerfinance.gov/policy-compliance/rulemaking/final-rules/2013-integratedmortgage-disclosure-rule-under-real-estate-settlement-procedures-act-regulation-x-and-truthlending-act-regulation-z/. The focus of this Guide is the TILA-RESPA Rule. This Guide does not discuss other federal or state laws that may apply to the origination of closed-end credit. The content of this Guide does not include any rules, bulletins, guidance, or other interpretations issued or released after the date on the Guide’s cover page. At the end of this Guide, there is more information about the TILA-RESPA Rule and related implementation support from the Bureau. 1.2 Who should read this guide? If your organization originates closed-end residential mortgage loans, you may find this Guide helpful to determine your compliance obligations for the mortgage loans you originate. This Guide may also be helpful to settlement service providers, secondary market participants, software providers, and other companies that serve as business partners to creditors.
1.3 Where can I find additional resources that will help me understand the TILARESPA Rule? Resources to help you understand and comply with the Dodd-Frank Act mortgage reforms and our regulations, including downloadable compliance guides, are available through the CFPB’s website at www.consumerfinance.gov/policy-compliance/guidance/implementationguidance/. On this website, we also offer the ability to sign up for an email distribution list 20 CONSUMER FINANCIAL PROTECTION BUREAU SMALL ENTITY COMPLIANCE GUIDE: TILA-RESPA INTEGRATED DISCLOSURE RULE v 5.0 through which we announce additional resources and tools as they become available. The eRegulations tool, which is available at www.consumerfinance.gov/eregulations, includes an unofficial version of Regulation Z (12 CFR part 1026), in which the TILA-RESPA Rule is codified. The tool provides updated versions of the regulatory text and commentary in a single location. If after reviewing these materials, as well as the regulation and official commentary, you have a specific regulatory interpretation question about the TILA-RESPA Rule, you can submit it to us on our website at https://reginquiries.consumerfinance.gov/. Please understand that the responses we provide are not official interpretations of the Bureau and are not a substitute for formal legal counsel or other compliance advice. Email comments about the Guide to CFPB_Reg[email protected] Your feedback is crucial to making this Guide as helpful as possible. The Bureau welcomes your suggestions for improvements and your thoughts on its usefulness and readability. The Bureau is particularly interested in feedback relating to: How useful you found this Guide for understanding the TILA-RESPA Rule; How useful you found this Guide for implementing the TILA-RESPA Rule at your business; or Suggestions you have for improving the Guide, such as additional implementation tips. 21 CONSUMER FINANCIAL PROTECTION BUREAU SMALL ENTITY COMPLIANCE GUIDE: TILA-RESPA INTEGRATED DISCLOSURE RULE v 5.0 2. Overview of the TILARESPA Rule 2.1 What is the TILA-RESPA Rule about? The TILA-RESPA Rule consolidates four disclosure forms that were required under TILA and RESPA for closed-end credit transactions secured by real property or cooperative unit into two forms: a Loan Estimate that must be delivered or placed in the mail no later than the third business day after receiving the consumer’s application, and a Closing Disclosure that must be provided to the consumer at least three business days prior to consummation.
2.2 What transactions does the rule cover? (§ 1026.19(e) and (f)) The TILA-RESPA Rule applies to most closed-end consumer credit transactions secured by real property or a cooperative unit (regardless of whether state law classifies it as real property). Credit extended to certain trusts for tax or estate planning purposes is not exempt from the TILA-RESPA Rule. (Comment 3(a)-10). However, some specific categories of loans are excluded from the rule. Specifically, the TILA-RESPA Rule does not apply to HELOCs, reverse mortgages, or mortgages secured by a mobile home or by a dwelling (other than a cooperative unit) that is not attached to real property. (§ 1026.19(e) and (f)). For further discussion of coverage, see section 4 below.
2.3 What are the record retention requirements for the TILA-RESPA Rule? (§ 1026.25) The creditor must retain copies of the Closing Disclosure (and all documents related to the Closing Disclosure) for five years after consummation. The creditor, or servicer if applicable, must retain the post-consummation Escrow Closing Notice and Partial Payment Policy Disclosure for two years. For additional information, see section 16 below. For all other evidence of compliance with the Integrated Disclosure provisions of Regulation Z (including the Loan Estimate) creditors must maintain records for three years after consummation of the transaction. Creditors are obligated to obtain and retain a copy of the completed Closing Disclosures provided separately by a non-creditor settlement agent to a seller under 1026.38(t)(5), but are not obligated to collect underlying seller-specific documents and records from that third-party settlement agent to support these disclosures. To the extent the creditor does receive documentation related to the seller’s disclosure, such as when the creditor is the settlement agent, or when seller-related documents are provided to the creditor by a third-party settlement agent along with the completed disclosure, the creditor should adhere to the record retention requirements that apply to the Closing Disclosure. 2.4 What are the record retention requirements if the creditor transfers or sells the loan? (§ 1026.25) If a creditor sells, transfers, or otherwise disposes of its interest in a mortgage and does not service the mortgage, the creditor shall provide a copy of the Closing Disclosure to the new owner or servicer of the mortgage as a part of the transfer of the loan file. Both the creditor and the new owner or servicer shall retain the Closing Disclosure for the remainder of the five-year period.
2.5 Is there a requirement on how the records are retained? Regulations X and Z permit, but do not require, electronic recordkeeping. Records can be maintained by any method that reproduces disclosures and other records accurately, including computer programs. (Comment 25(a)-2)
3. Effective Date 3.1 When do I have to start following the TILA-RESPA Rule and using the Integrated Disclosures? The TILA-RESPA Rule generally took effect on October 3, 2015 for applications received on or after October 3, 2015. The Integrated Disclosures (i.e., the Loan Estimate and the Closing Disclosure) must be provided by a creditor or mortgage broker that receives an application from a consumer for a closed-end credit transaction secured by real property on or after October 3, 2015.5 Creditors were required to use the GFE, HUD-1, and Truth-in-Lending forms for applications received prior to October 3, 2015. 3.2 Are there any requirements that take effect regardless of when an application was received? Yes. As discussed in section 13, below, the TILA-RESPA Rule includes some restrictions on certain activity prior to a consumer’s receipt of the Loan Estimate. These restrictions took effect on the calendar date October 3, 2015, regardless of when an application was received. These activities include:
Imposing fees on a consumer before the consumer has received the Loan Estimate and indicated an intent to proceed with the transaction (§ 1026.19(e)(2)(i)); Providing written estimates of terms or costs specific to consumers before they receive the Loan Estimate without a written statement informing the consumer that the terms and costs may change (§ 1026.19(e)(2)(ii)); and Requiring the submission of documents verifying information related to the consumer’s application before providing the Loan Estimate. (§ 1026.19(e)(2)(iii)) Beginning on October 1, 2018, a creditor must provide the Escrow Closing Notice and Partial Payment Policy Disclosure when required, regardless of when the creditor or mortgage broker received the application.6 (Comment 1(d)(5)-1) For example, for an application received on October 10, 2010, if the escrow account was cancelled on April 14, 2020, the creditor would be required to give the Escrow Closing Notice, because the cancellation occurred after October 1, 2018 and after that time, Escrow Closing Notice and Partial Payment Policy Disclosure are given regardless of when the application was received. (Comment 1(d)(5)-1.v.E) For more information about the Escrow Closing Notice and Partial Payment Policy Disclosure, see section 16 of this Guide. 6 Prior to October 1, 2018, it is acceptable for a creditor to give the Escrow Closing Notice and Partial Payment Policy Notice only to transactions where the application was received on or after October 3, 2015. For example, for an application received on October 10, 2010, if the escrow account was cancelled on December 19, 2016, the creditor would not be required to provide the Escrow Closing Notice because the application was received before October 3, 2015 and the cancellation occurred prior to October 1, 2018. A consumer may indicate an intent to proceed in any manner the consumer chooses, unless the creditor requires a particular manner of communication. (§ 1026.19(e)(2)(i)(A)). For further discussion on intent to proceed, see section 13.5 below. 26 CONSUMER FINANCIAL PROTECTION BUREAU SMALL ENTITY COMPLIANCE GUIDE: TILA-RESPA INTEGRATED DISCLOSURE RULE v 5.0 3.3 Can a creditor use the Integrated Disclosures for applications received before October 3, 2015? No. For transactions where the application is received prior to October 3, 2015, creditors will still need to follow the disclosure requirements under Regulations X and Z as they existed before the Integrated Disclosures were created by the TILA-RESPA Rule. A creditor will need to use the Truth-in-Lending disclosures, GFE, HUD-1, etc., as applicable, for those transactions. 27 CONSUMER FINANCIAL PROTECTION BUREAU SMALL ENTITY COMPLIANCE GUIDE: TILA-RESPA INTEGRATED DISCLOSURE RULE v 5.0 4. Coverage 4.1 What transactions are covered by the TILA-RESPA Rule? (§§ 1024.5; 1026.3; and 1026.19) The TILA-RESPA Rule applies to most closed-end consumer credit transactions secured by real property or a cooperative unit (regardless of whether state law classifies it as real property), but does not apply to: HELOCs; Reverse mortgages; or Chattel-dwelling loans, such as loans secured by a mobile home or by a dwelling (other than a cooperative unit) that is not attached to real property. Consistent with existing rules under TILA, the TILA-RESPA Rule also generally does not apply to loans made by a person or entity that is not considered a creditor under Regulation Z. (§ 1026.2(a)(17)) There is also a partial exemption for certain transactions associated with housing assistance loan programs for low- and moderate-income consumers. (§ 1026.3(h)) However, certain types of loans that are subject to TILA but are not subject to RESPA are subject to the TILA-RESPA Rule’s integrated disclosure requirements, including: Construction-only loans; and Loans secured by vacant land or by 25 or more acres.