Compliance Blog

Co-Written by JiJi Bahhur, Director of Regulatory Compliance, and Sarah Frank, Regulatory Intern

In past blog posts, the compliance team has spent a good amount of time covering general information pertaining to the Loan Estimate form, the document that will integrate and replace the existing initial disclosures required under the current Truth in Lending Act (TILA) and Real Estate Settlement Procedures Act (RESPA) rules.  As part of the TILA-RESPA blog series, we’d like to skip forward to the Closing Disclosure.  Like the blogs on the Loan Estimate form, there will be more than one blog on the Closing Disclosure, so today’s focus will be solely a highlight of the Closing Disclosure’s general requirements.

The Closing Disclosure form, generally a five-page document, integrates and replaces the existing HUD-1 and the final TIL disclosures for transactions where the loan requires a Loan Estimate and proceeds to closing. The purpose of this consolidation is to better explain loan repayment, as well as to improve consumer understanding of mortgage transactions.

The creditor is responsible for ensuring that the Closing Disclosure is received by the consumer no later than three business days before consummation of the loan (we will cover the timing and delivery requirements in more depth in a future blog).  The general requirements for the Closing Disclosure are located in new sections 1026.19(f) and 1026.38 of Regulation Z, and are summarized in the CFPB’s TILA-RESPA Small Entity Guide as follows:

• “The Closing Disclosure generally must contain the actual terms and costs of the transaction. (§      1026.19(f)(1)(i)) Creditors may estimate disclosures using the best information available when the actual term or cost is not reasonably available to the creditor at the time the disclosure is made. However, creditors must act in good faith and use due diligence in obtaining the information. The creditor normally may rely on the representations of other parties in obtaining the information, including, for example, the settlement agent.  The creditor is required to provide corrected disclosures containing the actual terms of the transaction at or before consummation. (Comments 19(f)(1)(i)-2, -2.i, and -2.ii).

 

• The Closing Disclosure must be in writing and contain the information prescribed in § 1026.38.      The creditor must disclose only the specific information set forth in § 1026.38(a) through (s), as shown in the Bureau’s form in appendix H-25.  (§ 1026.38(t))

 

• If the actual terms or costs of the transaction change prior to consummation, the creditor must provide a corrected disclosure that contains the actual terms of the transaction and complies with the other requirements of § 1026.19(f), including the timing requirements, and requirements for providing corrected disclosures due to subsequent changes. (Comment 19(f)(1)(i)-1)

 

• New three-day waiting period. If the creditor provides a corrected disclosure, it may also be required to provide the consumer with an additional three-business-day waiting period prior to consummation. (§ 1026.19(f)(2))”

Like the Loan Estimate form, the new Appendix H to Part 1026 contains model forms, including multiple variations of the Closing Disclosure. The standard form, H-25, must be utilized for all loans subject to the TILA-RESPA rule that are federally related mortgage loans. For loans that are not federally related mortgage loans but that are subject to the TILA-RESPA rule, creditors are not strictly required to use the H-25 form; however, the disclosure used by the creditor must contain the exact same information and be made with headings, content and format substantially similar to that form.

For a page-by-page overview of the Closing Disclosure, the CFPB has provided its TILA-RESPA Small Entity Guide and its TILA-RESPA Guide to Forms, which provide visuals of the form and detailed, illustrated instruction on how to complete the individual fields and calculations required for the Closing Disclosure.