BLOG VIEW: It's crunch time for disclosure reform. Aug. 1, the deadline set by the Consumer Financial Protection Bureau (CFPB) for the new integrated disclosures, will be here in the blink of an eye. This date represents the beginning of a new era in which the Real Estate Settlement Procedures Act (RESPA) and the Truth in Lending Act (TILA) are combined to provide consumers with more clear and concise disclosures.
Everyone knows this is the time to prepare for the new disclosures, but where is the best place to start? Read on for some tips to help get you ready for the new integrated disclosures.
New Paperwork, New Procedures
As has been covered extensively for the past year, the changes to TILA-RESPA involve two major changes to mortgage documents. First, the Loan Estimate consolidates two existing forms, the good faith estimate and the initial truth-in lending (TIL) disclosure. Lenders are required to provide the new Loan Estimate to borrowers no later than three business days after a borrower submits an application. In addition, there is a new definition of what data collected constitutes an application.
Second, the closing disclosure consolidates two existing forms: the settlement statement, commonly known as the HUD-1, and the final TIL disclosures. The closing disclosure must be provided to borrowers at least three business days prior to consummation of the loan. Making things more complicated, there are different definitions of ‘business day’ for the loan estimate and closing disclosure.
Four Steps To Prepare
If lenders are not already updating systems and renegotiating vendor relationships to prepare for the Aug. 1 deadline, then they are behind. However, no matter where you are on the preparation timeline, the following steps can help.
1. Develop An Implementation Plan
Successfully navigating the integrated disclosure changes begins with a strong implementation plan. Lenders should have already begun this process – but even for companies who have a plan in place, this is a good time to revisit the plan and make adjustments.
Building a successful implementation plan begins with evaluating loan products and determining the regulatory changes that will impact them. From there, lenders can build a gap analysis, set milestones for compliance, begin testing, tracking results and reporting to management and auditors. Lenders should also use this time to evaluate their technology needs and ensure their loan origination software (LOS) and document providers can support the changes needed.
2. Revise Policies And Procedures
TILA-RESPA reform is more than just a new set of disclosure documents. Lenders must also adjust their policies and procedures to account for the quality control and compliance issues behind the disclosures.
Accurately disclosing fees associated with obtaining a mortgage loan is important for a lender's good faith effort. In order for a lender to demonstrate compliance regarding this effort, there are strict guidelines on how much fees can change from the initial loan estimate to the final closing disclosure. Although this is not a new concept, the new rules help to provide additional clarification and, in some cases, to confine the lenders from using loopholes to charge additional fees after initial disclosures have been provided.
Additionally, the closing disclosure must be provided to the consumer a minimum of three days before closing, and significant changes to that disclosure now require, in some situations, a reset of a 72-hour waiting period prior to consummation.
During the preparation process, lenders should make sure that they test their LOS as well as their document and compliance automation engines to ensure that everything works smoothly and to allow for the appropriate policy changes.
3. Train Your Staff
The best-laid plans will not help if your staff is not appropriately trained. Lenders must determine what a training program needs to cover, as well as who should attend each training. Given that these trainings are so wide-reaching, consider offering follow-up sessions or refresher courses as implantation comes closer and, additionally, a session shortly after Aug. 1, giving your institution the ability to reflect on lessons learned in the opening weeks of the new policies.
In addition to in-house training, your technology partners will often offer in-depth training on how to comply with the new standards using their systems and provide you with reference material to assist in preparing internal training.
4. Improve Vendor Management
Finally, take the time to ensure that all of the critical systems used to originate and close loans are up to date, integrated well, and incorporate the new rules and policies. Your LOS and document providers should already be working with their customers to ensure that systems are upgraded and users understand how to navigate the changes within each system.
Aug. 1 will be here in the blink of an eye. No matter where you are on the road map to the new rules, by integrating technology, building proper procedures, training staff and following a well-laid-out plan, lenders can meet the TILA-RESPA deadline with confidence.
Susan Graham is president and chief operating officer of Financial Industry Computer Systems Inc. (FICS), a mortgage technology specialist that provides cost-effective, in-house mortgage loan origination, residential mortgage servicing and commercial mortgage servicing technology to mortgage lenders, mid-sized banks and credit unions.