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Consumer Financial Protection Bureau

CFPB Releases Final Regulation for Integrated Mortgage Disclosures

November 26, 2013

The Consumer Financial Protection Bureau (CFPB) on Nov. 20 released its regulation to combine federal mortgage disclosure forms required by the Truth in Lending Act (TILA) and Real Estate Settlement Procedures Act (RESPA).

A new five-page Closing Disclosure will replace the HUD-1 and final Truth-in-Lending (TIL) disclosure, while a three-page Loan Estimate will replace the GFE and early TIL. The CFPB announced an implementation date of Aug. 1 2015, which gives the industry 21 months to prepare for the new disclosures. The final rule and the Official Interpretations—on which settlement agents and creditor can rely—contain detailed instructions as to how each line on the Closing Disclosure form should be completed.

“We support the CFPB’s efforts to simplify the mortgage disclosures to help consumers better understand what they are purchasing when they are sitting at the closing table to buy a home,” said Michelle Korsmo, ALTA’s chief executive officer. “We are pleased that the CFPB has listened to industry professionals and provided an appropriate timeframe for implementation of this important rule.”

The final rule and new disclosures apply to most consumer mortgages, but does not apply to commercial transactions, home-equity lines of credit, reverse mortgages, or mortgages secured by a mobile home or by a dwelling that is not attached to land.

The CFPB announced the final rule during a field hearing in Boston. Korsmo testified during the hearing along with several other representatives from industry groups. You can watch her testimony here.

“ALTA members work every day to make sure they are protecting Americans’ most valuable investment: their homes,” Korsmo said. “We know there is a lot that happens between signing that contract and that fantastic day when the homeowner gets the key to their new home and that’s where our members come in.

“The reality is that changes come with a cost and while there is never a convenient time to go through this type of change, we want to know that as we make our significant investment in updating our systems, training our staff and educating consumers will result in a positive experience for the homebuyer and seller,” she added.

Following the field hearing, ALTA, the New England Land Title Association and the Real Estate Bar Association hosted a roundtable discussion titled “A New Era of Closings and Settlements.” More than 60 real estate attorneys and title and settlement professionals including two CFPB staff members attended.

The discussion focused on how the rule and new disclosures will impact closings, the ways it will impact relationships with lender clients and consumers and issues with implementation. Attendees were able to ask Richard Horn, senior counsel in the Office of Regulations at the CFPB, specific questions about the final rule.

“ALTA has worked with the CFPB for nearly three years to assist in simplifying mortgage disclosures for consumers,” Korsmo said. “Implementation of this regulation will cost small businesses in every community thousands of dollars in software upgrades, training and business integration.”

‘All-in’ APR

After listening to industry concerns, the CFPB’s final rule did not include a proposal that would have included title insurance in the total costs listed on the new mortgage disclosures.

Initially proposed by the Bureau in July 2012, the rule would have incorporated almost all of the up-front costs of the loan—including title insurance—into the calculation of the annual percentage rate on the Loan Estimate and Closing Disclosure. The agency backed down after feedback suggested that the ‘all-in’ APR “might have affected the types of loans available to consumers,” according to the Bureau, which added it may propose a rule on this after additional study.

The APR feeds into calculations under other regulations that determine whether a mortgage is a higher-priced loan. If a higher APR pushes a loan into that category, lenders could be more vulnerable to lawsuits under a separate CFPB rule that takes effect in January.

“We applaud the CFPB for listening to our members and eliminating the ‘all-in’ APR as it would not help consumers shop for a mortgage and could limit their settlement choices,” Korsmo said.

Who Provides Closing Disclosure

Currently, settlement agents are required to provide the HUD-1, while lenders provide the revised TIL disclosure. The Bureau proposed two alternatives for which party is required to provide consumers with the new Closing Disclosure form. Under the first option, the lender would be responsible for delivering the Closing Disclosure form to the consumer. Under the second option, the lender may rely on the settlement agent to provide the form. However, under the second option, the lender would also remain responsible for the accuracy of the form. The costs to creditors and settlement agents under this alternative would depend on how creditors and settlement agents go about fulfilling the joint requirement, according to the CFPB.

In the final rule, the CFPB said the creditor is responsible for delivering the Closing Disclosure form to the consumer, but creditors may use settlement agents to provide the Closing Disclosure, provided that the settlement agents comply with the final rule’s requirements for the Closing Disclosure. It’s important to note that the final rule acknowledges settlement agents’ longstanding involvement in the closing of real estate and mortgage loan transactions, as well as their preparation and delivery of the HUD-1.

“The final rule avoids creating uncertainty regarding the role of settlement agents and also leaves sufficient flexibility for creditors and settlement agents to arrive at the most efficient means of preparation and delivery of the Closing Disclosure to consumers,” the CFPB wrote in its rule.

While the Bureau highlighted the historic role of settlement agents at the closing table, other parts of the regulation could undermine this intent.

“We have much work to do to advocate to consumers, real estate agents, lenders, legislators and regulators regarding our vital role as the trusted third party at the closing table,” Korsmo said.

Three-day Rule

According to the regulations, the creditor must give the Closing Disclosure to the consumer at least three business days before the loan closes. As an example, if settlement is scheduled for Thursday then the consumer must receive the disclosures by Monday.

Generally, if changes occur between the time the Closing Disclosure form is given and the closing, the consumer must be provided a new form. When that happens, the consumer must be given three additional business days to review that form before closing.

The CFPB listened to ALTA concerns here as well and limited the instances that would require a new Closing Disclosure to be issued. Limiting the instances of delays in real estate transactions will help to ensure a positive experience for the consumer at the closing table, Korsmo said.

Changes that require creditors to provide a new Closing Disclosure and an additional three-business-day waiting period after receipt include:
  • changes to the APR above 1/8 of a percent for most loans (and 1/4 of a percent for loans with irregular payments or periods)
  • changes the loan product
  • addition of a prepayment penalty to the loan
“For nearly two years, Title Action Network members expressed concern about the CFPB’s three-day rule,” Korsmo said. “TAN members responded to 11 different calls for comment to the CFPB and successfully encouraged more than 80 members of the U.S. House of Representatives to sign on to a letter by Representatives Stivers (R-OH) and Perlmutter (D-CO) urging the CFPB to provide the needed flexibility to avoid costly delays to closing.


Similar to existing law, the final rule restricts the circumstances in which consumers can be required to pay more for settlement services than the amount stated on their Loan Estimate form. Unless an exception applies, charges for the following services cannot increase:
  • the creditor’s or mortgage broker’s charges for its own services
  • charges for services provided by an affiliate of the creditor or mortgage broker
  • charges for services for which the creditor or mortgage broker does not permit the consumer to shop. Charges for other services can increase, but generally not by more than 10 percent, unless an exception applies.
The exceptions include, for example, situations when:
  • the consumer asks for a change
  • the consumer chooses a service provider that was not identified by the creditor
  • information provided at application was inaccurate or becomes inaccurate
  • the Loan Estimate expires
When an exception applies, the creditor generally must provide an updated Loan Estimate within three business days.

‘Optional’ Owner’s Title Insurance

While the Bureau’s integrated forms make improvements in the way they provide information to the consumer, they fall short in their disclosure of title-related fees to consumers.

In the final rule, owner’s title insurance is labeled as ‘optional’ on both the Loan Estimate and Closing Disclosure.

“Telling a consumer that owner’s title insurance is 'optional’ will mean that home buyers may be dissuaded from purchasing the same protection that lenders receive from a title insurance policy,” Korsmo said.

ALTA will continue to work with the CFPB on this issue. During ALTA’s roundtable, Horn said the use of the word “optional” did not impact consumers’ decision to purchase title insurance.


The CFPB reported it worked with Kleimann Communication Group to conduct qualitative testing as well as a quantitative validation study to measure how well the forms work. The CFPB reported it conducted more than two years of research, testing and review to find out how to create mortgage disclosures that do what the law intended them to do: disclose information in a way that consumers can understand.

The CFPB said its testing showed that participants who used the CFPB’s new forms were better able to answer questions about a sample loan—a statistically significant improvement of 29 percent. Importantly, they were better able to decide whether they can afford the loan, including the cost of the loan over time. Specifically, the study concluded the forms help consumers better understand key information:
  • Risk factors: Because information on the CFPB forms is disclosed in an easy-to-read format, consumers can more easily identify risky loan features. In addition, lenders will have to tell homebuyers about prepayment penalties, larger-than usual periodic payments, and complicated loan structures.
  • Short-term and long-term costs: By putting the important information in a clearer format than the current forms and in plain language, both the Loan Estimate and Closing Disclosure more easily explain the total costs of the loan. This includes an important breakdown of the loan amount, the principal and interest payment, and how it could change, and closing costs.
  • Monthly payments: The CFPB forms state in bold font what a consumer’s monthly principal and interest payments will be. If it is an adjustable-rate loan, the forms say the projected minimum and maximum payments over the life of the loan.
The CFPB testing also found the new forms performed better than the current forms when it comes to comparing competing offers by as much as 42 percent. According to the CFPB, the forms enable better:
  • Comparisons of competing loan offers: The new forms use formatting that clearly breaks down the costs of the loan, such as the interest rate, mortgage insurance costs, and closing costs. As a result, would-be-homebuyers and those refinancing their existing mortgage are better able to distinguish between two different loan offers.
  • Shopping for closing costs: Closing costs are the costs of completing a mortgage transaction, including origination fees, appraisal fees, title insurance, taxes, settlement services, inspections, and homeowner’s insurance. Consumers can save money if they shop around for their own service providers for some of these costs. The CFPB forms plainly outline what closing services a consumer will need and which ones they can shop around for.

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