LAS VEGAS — With less than a year before implementation, the clock is ticking for financial institutions that need to overhaul mortgage disclosures.
And credit unions that wait until next year to change their disclosure forms will be too late, according to one legal expert.
That's the warning from Andy Keeney, an attorney at Kaufman & Canoles who led an educational session at NAFCU's annual conference here last month on changes to TILA and RESPA — the Truth In Lending Act and Real Estate Settlement Procedures Act, respectively.
He later told Credit Union Journal that far too many CUs have not gotten started changing their disclosure forms.
The Consumer Financial Protection Bureau issued the new integrated mortgage disclosure requirements Nov. 20, 2013. The CFPB's stated purpose is to make the understanding of the content of various home loan documents easier. One document, known as the Loan Estimate, will combine the TILA Early Disclosures and the RESPA Good Faith Estimate, while a second document, the Closing Disclosures, combines the HUD-1 and TILA Closing Disclosure.
The implementation date for the two new disclosure forms is Aug. 1, 2015.
"Use of CFPB forms is mandatory for most transactions, with only limited modifications permitted," Keeney noted.
The new forms must be used for nearly all closed-end mortgage loans, except HELOCs, reverse mortgages, mortgages not secured by a dwelling such as mobile home loans, and those by a creditor that makes five or fewer mortgages in one year.
"The final rule is better than the proposal in a few areas," Keeney told the audience. "Most important, there is no all-in APR. The proposal would have included a much more expansive definition of 'finance charge.'"
Business Day?
Perhaps the most confusing part of the new disclosures is the definition of "business day" varies from form to form, and from use to use. Sometimes Saturday is counted as a "business day," but sometimes it is not.
For example, lenders must deliver the Loan Estimate to borrowers three business days after the application is received. In this instance, Saturday is not a business day.
However, the rule states there must be seven business days between receipt of the Loan Estimate by the borrower and the actual closing of the loan — and Saturday is counted as a business day in that calculation.
At crunch time, the Closing Disclosure must be delivered to the borrower three business days before the loan closes — and here a Saturday is counted as a business day. Just to make things more confusing, if the APR is inaccurate and must be changed, or if a prepayment penalty is added or other loan product changes are made, the three-day clock restarts.
Potential Liability
In addition to having to worry about the timing of the two disclosures, Keeney emphasized the potential liability CUs face if there are mistakes in the documents. The Loan Estimate has to summarize key loan terms, estimate all loan and closing costs, and allow consumers to comparison shop their loans in an apples-to-apples manner.
"There is only one loophole to the Loan Estimate," Keeney said. "An alternative may be used if the transaction does not have a seller, such as a foreclosure."
Another possibility of hidden liability comes from the fact a mortgage broker may provide the Loan Estimate to the borrower — but the credit union is still liable for errors.
"Credit unions cannot hide behind third parties and say they are not liable," he reported, adding the penalty if $5,000 per document, per loan application.
Yet another potential trap lies in advertisements of mortgages. Keeney said all advertisements require a disclaimer warning there is no substitute for an official Loan Estimate form. "You will have to coordinate the marketing department with your compliance department," he told attendees.
The Closing Disclosure must contain the actual terms and costs of the transaction, in addition to satisfying timing and delivery requirements. The consumer must receive the Closing Disclosure at least three business days prior to closing, including Saturdays.
If the APR changes more than one-eighth of a percent, a new and revised form must be sent.
Communication Timeline
If consummation is scheduled for Thursday, the Closing Disclosures can be hand delivered on Monday (assuming each weekday is a business day and not a holiday). Alternatively, if consummation is scheduled for Thursday, the Closing Disclosures would have to be placed in the mail on Thursday of the previous week. By mail rules, the consumer is considered to have received the document on Monday in this example — again, assuming no mail holidays.
Implementation of the new disclosure requirements will mean "substantial changes" in technology, as well as "substantial" costs including employee training, Keeney said.
"It is a long timeline, but most credit unions will need all 12 months," he said. "They must do more than sit on the sideline. They need to take charge now. Training will be expensive and will take a long time."
About the only good news for CUs, Keeney said, is the CFPB has done a "great job" of preparing resources. On the Bureau's website (
CUs seeking best practices in compliance with the new forms should draft procedures now with the intention of being ready by Sept. 1 of this year. He said they should meet monthly with their data processor, alert staff and members, educate the board, meet monthly with marketing, and make sure any vendors are fully versed in the new disclosures. "Get ready for this regulation," he urged.
Attendee Reaction
Jessica Ellebracht, compliance officer with $70 million Tulare County FCU, Tulare, Calif., said CUNA is reviewing her credit union's applications to help it prepare.
"We outsource our first mortgages," she said. "We link from our website to another site. So I made a note that the credit union is still considered liable if there is a mistake."
