On November 20, 2013, the Consumer Financial Protection Bureau (CFPB) issued its long-awaited final rule combining the mortgage disclosures required by the Truth in Lending Act and Real Estate Settlement Procedures Act. A key initial step is determining which mortgage loan products will be covered by the new rules—which go well beyond the new disclosure requirements. For example, the new rules amend definitions such as "application" and "business day," adjust timing requirements, and tighten tolerance levels. By understanding which loans are covered, lenders will have a better idea of the resources needed to comply with the new requirements.
There are no lender exemptions from the new rules. The rules apply to all mortgage lenders regardless of asset size and do not depend on the pricing of the mortgage (i.e., higher-priced or high-cost). A lender originating 20 closed-end home equity loans each year will need to comply to the same extent as a lender originating 800 purchase-money mortgage loans per year. All covered mortgage loan applications received by lenders on or after August 1, 2015 are subject to the new rules.
Covered Mortgage Loans
The new rules apply to closed-end consumer transactions secured by real property. This includes both first lien and subordinate liens. The rules will apply to loans for purchases, refinances, closed-end home equity loans, second homes, vacation homes, loans on 25 or more acres, vacant-lot loans, and construction-only loans.
There are loans specifically excluded from coverage. Those include home-equity lines of credit (HELOCs), reverse mortgages, and chattel-dwelling loans. The existing regulatory requirements will continue to apply to these excluded loans. However, the CFPB indicated that it will address integrated disclosure requirements for such excluded loans in future rulemakings.
The new requirements will require countless hours of review, analysis, interpretation, implementation, training, and testing. Mortgage lenders should create a strong implementation team comprised of lending, compliance, IT, legal, vendors, and HR/training to understand the impact of the new rules. By starting now, lenders will have a better understanding of the required changes and the steps they will need to take to comply by August 1, 2015.