Explainer: How the final TILA-RESPA rule differs from the proposal
When we first proposed the TILA-RESPA disclosure rule, we got a lot of questions about the length of the document containing the rule. We synthesized those questions into one representative question and wrote a post to give you some answers. Now that we’re finalizing the rule, we wanted to do it again to talk about what’s changed in the last sixteen months.
So, what’s different?
Sure. Directness is probably the best approach. But let’s back up.
We received more than 27,000 individual comments and emails on the disclosure prototypes we posted throughout the supplemental Know Before You Owe project for mortgage disclosure. That’s on top of all the in-person testing we did with dozens of consumers. We also tested them with industry to make sure they could understand and use the disclosures in their business. That was all before we issued the proposal.
Once we proposed the rule, we received almost 3,000 comments , including comments received during the public comment period and additional information submitted to the record. That didn’t surprise us; this is a significant rule that affects two major federal regulations, consumers’ experience in shopping for and closing on mortgages, and almost the entire residential real estate industry. We spent a lot of time analyzing the comments and figuring out the best way to respond to them.
Did they lead to any changes to the rule?
We made a few significant changes. First, the proposal had two provisions we didn’t include in the final rule:
- We aren’t including the “all-in APR,” as some referred to it. This provision in the proposal would have changed the definition of the finance charge, which is used to calculate the annual percentage rate, or APR. The change might have cost industry a lot and might have affected the types of loans available to consumers. A number of other mortgage rules are about to go into effect that might make these effects even bigger.
We’re going to keep looking at this. The Dodd-Frank Act requires us to report on this rule five years after its effective date, and we’ll study this issue as part of that.
- The proposal required machine-readable record retention. However, we heard that the data standard we were proposing wasn’t specific enough. In principle, we still think this is a good idea, but we’re going to do additional study and spend more time discussing with stakeholders before requiring any particular standard.
We also changed a couple other requirements you should be aware of.
- The rule requires a three-day waiting period after issuing the Closing Disclosure before closing the mortgage. In the proposed rule, we said lenders should reissue that disclosure any time there are more than minor changes, followed by a new three-day waiting period. Comments suggested this might lead to frequent delays in closing mortgages. That’s clearly not good. But also not good: consumers not having time to think through significant changes. So we kept the consumers’ reviewing time in mind as we more narrowly defined the requirements.
The new waiting period now comes only if there are substantial changes to the APR, the loan product itself changes (like a fixed rate loan becomes an adjustable rate or interest only mortgage), or the lender adds a prepayment penalty. And just to be sure, the rule guarantees consumers the right to examine the Closing Disclosure on request on the day before closing even without substantial changes.
- The rule also requires lenders to issue the initial Loan Estimate within three days of a consumer applying for a mortgage. In the proposed rule, we included Saturdays in that three-day period. Smaller businesses like community banks and credit unions told us they’re usually closed Saturdays and this would force them to be open. That seemed like a pretty significant burden, one we didn’t want to impose, so the three-day period now includes only days the lender is actually open. If you’re open on Saturday, Saturday counts; if you’re not, it doesn’t.
Does that significantly lengthen the rule?
At least for the regulatory language, it actually isn’t much longer. The proposed amendments to regulations were 209 pages. For the final rule, that’s 279 pages.
So why does the document you sent the Federal Register seem a lot bigger than before?
It is. The preamble provides context for the proposed forms and regulatory changes. The mortgage market is big, and mortgage disclosure regulation has 43 years of history. Also, before writing the rule, we spent a lot of time talking to industry and consumers and analyzing costs and benefits. That’s a lot of context, and that means a long preamble.
If that paragraph looks familiar, it should. We wrote it when we proposed the rule. We just copied and pasted it here. (Hey, it’s still accurate, except 43 years is now 44.) This time, the preamble contains even more information. We have a responsibility to acknowledge and explain our reactions to the comments we received in the public comment period. Again, there were almost 3,000 of them. Some of them asked us to study something or to provide evidence or more explanation for things we had decided. As you’ll see in the table below, this accounts for the bulk of the increase.
Finally, based on these public comments, we modified some of the guidance and interpretations that accompany the rule. We had to explain what we were changing and why. That also made it longer, but it also clarifies a number of things that we heard weren’t clear in the proposal. We believe that in the long run, this clarity will make compliance easier for industry.
Here’s a quick breakdown of what’s in the document:
Proposed amendments to regulations
Proposed guidance regarding compliance with the amended regulations
Okay, bottom-line this. What does the new rule do?
This rule is about improving the way consumers get loan information when they apply for and close on a mortgage. Most of the requirements are about two disclosure documents, the Loan Estimate and the Closing Disclosure. There are also some key provisions about timing. Yesterday’s post describes the basic requirements, and it details why the new disclosures improve the experience of getting a mortgage.
How long does industry have to comply with this?
The rule generally is effective for any loan applications that a lender receives on or after August 1, 2015. Some provisions become applicable right on August 1, 2015, because they apply to things that can happen before an application is received. For industry, that probably seems fast. For consumers, it may seem like a long time. Our goal was to give industry enough time to make system changes, devise new business practices, and train staff. Consumers will be better off if industry has the time and support it needs to understand and comply with the rule. To that end, in the next few months we’ll start an implementation support program for mortgage providers and servicers who will have to comply.
Can I hear from you as you release more information about the rule?
Yes! If you want to hear from us about the implementation support efforts, sign up here. [put an email signup form to the right] We’re also creating tools to help consumers interested in owning a home. Sign up on our Owning a Home page to be one of the first to know as we release them.