RESPA Regulations Under Review: Are Changes Coming?
After the housing bubble crashed, the government launched sweeping new regulations to make the mortgage industry safer for consumers. One of these new regulations is the TILA-RESPA Integrated Disclosure Rule from the Consumer Financial Protection Bureau (CFPB), also known as the “Know Before You Owe” rule. Although this new law is set to begin in August 2015, the CFPB realizes that it’s not perfectly designed. They recently announced two possible changes that could improve the law for both lenders and consumers.
Overview of TILA-RESPA
The housing bubble was partly caused by consumers signing up for loans they didn’t fully understand. This, in turn, led them into financial trouble when the payments and loan terms turned out to be different than they expected.
TILA-RESPA sets out to revise the disclosure documents published by lenders. These new disclosures should more clearly show important financial information about loans, such as monthly payment and interest rates. They also should explain how and when loan payments might change, as is the case with adjustable rate mortgages. Now that lenders have had a chance to review these new regulations, problems have been noted that can be remedied by two new proposed changes.
1. More time for loan estimates with floating rates
TILA-RESPA seeks to give consumers key information about their possible mortgages as soon as possible. Under these rules, lenders need to give borrowers a copy of their loan estimates the day they lock in their interest rate. This could be a problem for floating rate loans because it doesn’t give lenders enough time to calculate estimates, especially in the event that consumers sign up late in the day or after business hours. Lenders suggested that the law may force them to limit sign-ups for floating rate loans to business hours or even before noon. As a result, the CFPB is considering extending the deadline for floating loan estimates to the next day so lenders have more time.
2. New warning for construction loans
Construction loans could create another problem. These loans typically take longer to settle than other loans, sometimes exceeding 60 days. Market conditions can change significantly over this time, and lenders may need to send out a revised estimate of loan charges. The CFPB has proposed the addition of a new warning for construction loan estimates that will let applicants know that they could get a revised estimate of charges if the loan takes longer than 60 days to settle.
The future of proposals
TILA-RESPA is still a work in progress and isn’t set to begin until August 1, 2015. However, the window to submit feedback for these recent proposals officially closed in November. The CFPB will now reconsider whether it will make these changes. Lenders interested in providing feedback should keep an eye on the CFPB website for more updates on this law. It is also a great site for lenders to submit feedback on any new proposals going forward, making a difference in the regulations that will shape their business in the future.