Beginning in early 2011, the Consumer Financial Protection Bureau (CFPB) initiated an industrywide research project to gather opinions and test new approaches to mortgage forms. To create a more informed consumer, they concluded, the layout and content of some popular forms would need to be consolidated and reexamined.
This has resulted in the creation of the Loan Estimate Form, which is a combination of the Good Faith Estimate (GFE), required by RESPA, and the Initial Truth in Lending Disclosure (TIL), required by TILA. Believed to reduce confusion, the new form places all estimate costs and an overview of consumer obligations in one place. The CFPB believes it will help borrowers avoid surprises at the closing table and facilitate more comparable loan shopping. According to a quantitative validation study produced by the CFPB, participants provided more correct answers about a sample mortgage using the new forms than they did using the old forms.
However, the changes are not just cosmetic. Producing and delivering the Loan Estimate Form will require substantial operational changes for every financial institution. According to the CFPB:
- “Either a mortgage broker or creditor is required to provide the Loan Estimate form upon receipt of an Application by a mortgage broker. However, even if the mortgage broker provides the Loan Estimate, the creditor remains responsible for complying with the all requirements concerning provision of the form.”
- “The creditor or mortgage broker must provide the form to the consumer no later than three business days after the consumer applies for a mortgage loan. The final rule contains a definition of what constitutes an “application” for these purposes, which consists of the consumer’s name, income, social security number to obtain a credit report, the property address, an estimate of the value of the property, and the mortgage loan amount sought.”
- “Consistent with current law, the creditor generally cannot charge consumers any fees until after the consumers have been given the Loan Estimate form and the consumers have communicated their intent to proceed with the transaction. There is an exception that allows creditors to charge fees to obtain consumers’ credit reports.”
- “Creditors and other persons may provide consumers with written estimates prior to application. The rule requires that any such written estimates contain a disclaimer to prevent confusion with the Loan Estimate form. This disclaimer is required for advertisements.”
Financial institutions are counting down to August 1st, 2015 when these rules will take immediate effect. Failure to meet the new requirements could mean unprecedented fine amounts. According to Housingwire, civil penalties could reach as high as $1,000,000 per day. Even an unintentional TILA-RESPA violation can result in a fine of $5,000 per day.
Are You Prepared for August?
The Loan Estimate Form, as well as the rest of “Know Before You Know,” is elaborated on more in our new eBook, “All in Good Faith: How ‘Know Before You Owe’ Changes Everything.” In it, author Jorge Sauri explains the history of this new regulation, how to respond to the new rules as well as how it will impact you and your customers.