At Irvine Residential Living, we believe every homebuyer should have access to all of the information they need for making well-informed purchase decisions. Fortunately, new regulations will go into effect on October 1, 2015, that require lending companies to provide buyers with new fee quote and mortgage rate documents. Consumers will also have additional time to review these documents before opting to close deals.
Consumer Protection Against Fee Abuses
Created in 1968, the Truth in Lending Act (Regulation Z or TILA) is designed to protect people from closing costs abuse by providing standard methods for the calculation of mortgage loan fees and terms and for the disclosure of these things. The Real Estate Settlement Procedures Act was created in in 1974 to supplement TILA. This Act (Regulation X) prohibits specific service providers within the housing industry from paying or collecting money for customer referrals. These service providers include escrow companies, lending institutions, title companies, real estate agents, and attorneys.
Consumers have additional protection from the Consumer Financial Protection Bureau (CFPB) that was founded in 2011. In October 2015, the CFPB will consolidate mortgage disclosures that are legally required by both Regulation X and Regulation Z, thereby creating the TILA-RESPA Integrated Rule. As a result of this new rule, all mortgage lenders will have to adhere to new mortgage disclosure rules and timelines.
New Disclosures Under The TILA-RESPA Integrated Rule
Consumers are currently being given two sets of disclosures upon mortgage approval. One set of disclosures is remitted during the formative stages of the loan application process while the other is remitted at the end. Lenders are required to send an Initial Truth In Lending disclosure and a Good Faith Estimate. These two disclosures show the total of all fees, the quoted rate, and the costs that must be paid over the entire life of the mortgage loan.
Just before closing, buyers must additionally receive a breakdown of all transactional fees including closing costs in the form of an HUD-1. They should also be given another Truth In Lending disclosure, which may or may not differ from the one that was presented before. Given that the HUD-1 is often presented to buyers on the day of closing, this does not give them adequate time to review an accurate breakdown of the total fees that must be paid.
The goal of the TILA-RESPA Integrated Rule is to give buyers more time to review these important documents and to increase the amount of information that consumers have access to. Thus, after October 1, 2015, lenders will need to remit a Loan Estimate form with a line-item breakdown of all fees and terms associated with the mortgage loan within three days of the consumer’s loan application submission. Before moving forward with the application and approval process, the lender must also obtain an intent to proceed from the prospective borrower. Moreover, the lender will need to supply a Closing Disclosure Form that is structured much like the Loan Estimate, but also segregates the costs that sellers, buyers and third parties must pay. The Closing Disclosure Form must be given to the buyer three days before closing so that she or he has ample time to review it.
If you’d like to learn more about how these new rules could affect your home-buying process, reach out to Irvine Residential Living. We specialize in houses, condos, and townhomes in Irvine for sale and would be happy to answer questions you might have. Give us a call at (714) 454-6304 to speak with one of our experienced agents.