On November 20, 2013, the Consumer Financial Protection Bureau finalized new regulations to combine the mortgage disclosures required by the Truth in Lending Act and the Real Estate Settlement Procedures Act. Beginning with applications received on or after August 1, 2015, lenders will need to use the new Loan Estimate and Closing Disclosure.
Timing for Loan Estimate
The Loan Estimate must be provided to consumers within three business days after the lender (or mortgage broker) receives an application. Additionally, the Loan Estimate must be delivered or placed in the mail no later than the seventh business day before consummation.
If an application was denied or withdrawn within three business days, lenders are not required to deliver a Loan Estimate.
Importantly, the new definitions of "application" and "business day" play a key role in this timing requirement
Timing for Closing Disclosure
The Closing Disclosure must be received by consumers at least three business days prior to consummation. If the Closing Disclosure is delivered in person, it is considered received by the consumer at that time. However, if the Closing Disclosure is provided by any other delivery method the consumer is "considered to have received" the disclosure three business days after it is delivered or placed in the mail.
This timing requirement could result in the Closing Disclosure being provided six business days prior to consummation. For example, if the lender (or settlement agent) placed the Closing Disclosure in the mail on Thursday, the consumer would be "considered to have received" the disclosures on Monday and consummation could occur on the upcoming Thursday (assuming all days are "business days").
Lenders can rely on evidence indicating the consumer received the Closing Disclosure earlier and should establish methods to document a consumer's receipt.
The new Loan Estimate and Closing Disclosure will require lenders to evaluate and review their current procedures to ensure they are ready to comply with the new timing requirements.
The new definition of "application" could move up the timing of the Loan Estimate earlier in the lending process. Similarly, the Closing Disclosure must be received by consumers at least three business days prior to consummation putting additional strain on the closing process.
While the disclosures themselves will be a massive implementation project, the new timing requirements will trigger numerous procedural changes for lenders.