Part of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act, Sections 1098 and 100A) directed the CFPB to combine certain disclosures that consumers receive in connection with applying for and closing on a mortgage loan under the Truth-in-Lending Act and the Real Estate Settlement Procedures Act. Effective August 1, 2015, the integrated mortgage disclosures rule goes into effect.
Part of the new rule, will change the terms mortgage industry professionals use and the forms consumers will receive during the loan application and loan closing. The Good Faith Estimate, Truth-in-Lending Disclosure and HUD-1 Settlement Statement will be eliminated from the loan process and replaced with the Loan Estimate and Closing Disclosure forms. In addition, new terms will be included in the forms; Total Interest Percentage and Approximate Cost of Funds.
The Good Faith Estimate and the Initial Truth-in-Lending Disclosure will be replaced with the Loan Estimate and the HUD-1 and Final Truth-in-Lending Disclosure will be replaced with the Closing Disclosure. Both of these forms will be consumer friendly and will take on a similar look and design establishing a sense of familiarity for the consumer.
Both new disclosures will include a new term, Total Interest Percentage or “TIP.” Though different than the TIP provided to the food server at your favorite restaurant, it does show the borrower the percentage of total payments made over the life of the loan that is interest and for a normal 30 year loan this can be in the high 60s. The new term Approximate Cost of Funds (ACF) is found in the Closing Disclosure and reflects in a percentage how much the borrower is paying in non-loan related charges.
Most of the soon to be replaced disclosures have been part of the mortgage lending industry for almost 40 years. We have grown accustom to their presence, but as we move forward these new disclosures will not only change the appearance of our documents, they may also provide something we’ve long needed, disclosures a borrower might actually understand.