New Disclosure Duty


Ideas for implementing the new RESPA-TILA mortgage disclosure rules

By Katie Kuehner-Hebert

Mortgage Rules Resource CenterICBA offers lots of information and resources online on the Consumer Financial Protection Bureau’s new rules on mortgage lending, including the new RESPA-TILA disclosures for consumers. The association’s Mortgage Rules Resource Center, an ICBA Web page, includes summaries of the final rules and links to the rules themselves.

ICBA will continue to update the page, located under the Advocacy section of the association’s website,, as new information and resources become available.

ICBA policy experts are also available to answer questions. Email questions to ICBA’s Ron Haynie (, Elizabeth Eurgubian ( or Ann Grochala (

As if community banks didn’t have enough compliance duties on their punch lists, now comes complicated new mortgage disclosure changes to deal with.

While community banks have until August 2015 to comply with the new Dodd-Frank Act-mandated rules for blending the different mortgage disclosures long required under the Real Estate Settlement Procedures Act and the Truth in Lending Act, a number of critical technical and nontechnical issues should be considered now in order to be adequately prepared, regulatory compliance experts say.

“The irony is that the Consumer Finance Protection Bureau is trying to make it easier for consumers, but then issues thousands of pages for banks to sift through,” points out Stephanie Kalahurka, an attorney at Spencer Fane Britt & Browne LLP in Kansas City, Mo. “For smaller institutions especially, that’s really adding to the regulatory burden.”

Kalahurka and other compliance experts shared some tips on how community banks can begin to plan to comply with the RESPA-TILA disclosure rules, which includes two new “Know Before You Owe” mortgage disclosure forms for consumers.

When the rule takes effect in 2015, consumers will be given a Loan Estimate form within three business days after they submit a loan application. The three-page Loan Estimate will replace the current Good Faith Estimate. The form provides a summary of loan terms, closing costs, and the ability to compare costs and features of different loans.

The rule creates a new Closing Disclosure form that will need to be given to homebuyers three days before closing on a loan—not at the closing table. The five-page Closing Disclosure form replaces the final Truth in Lending statement and the HUD-1 settlement statement used to itemize fees charged to the borrower.

Gathering information

One particular challenge of the new rule has to do with the timing of producing the forms, Kalahurka says. Once a prospective customer provides six specific pieces of information on a mortgage application—their name, income, Social Security number, address of the property they would like to buy, its estimated value and the type of mortgage loan sought—then under the new rule a mortgage lender will continue to have just three business days to provide a loan estimate form if it wants the customer’s business. However, Kalahurka says, one potential problem is that a bank might not have all the information it needs to actually calculate an accurate loan estimate, such as verification of the customer’s income and his or her credit report from credit bureaus.

A second new required form, the Closing Disclosure form, is designed to help customers understand all the costs of the transaction and must be given to them three business days before the loan closes, Kalahurka says. Banks are also now responsible for disclosures issued by mortgage brokers whom they may buy loans from, so banks should prepare now to update their policies to verify both disclosures will be handled correctly by brokers, she says. Also, banks will be responsible for the accuracy and the timely delivery of the Settlement Disclosure even if the form is completed and sent to the borrower by a settlement agent.

To determine how the various CFPB mortgage rules, including the new RESPA-TILA disclosure rule, will affect them, community banks should develop an implementation plan to evaluate their current mortgage products and services they offer, advises Kris Welch, vice president at Bethesda, Md.-based Chartwell Compliance, a consulting service provider of the ICBA Compliance & Risk Management program. That process should involve all key stakeholders in implementation plans, including mortgage, compliance, legal, IT and third-party service providers, she says.

Community banks should perform gap analyses to determine the business lines, operational and automated transaction processes that may require changes as a result of the new mortgage disclosure rules, Welch continues. Implementation plans should contain key milestones, dates for completion of the required steps and progress reports.

Working with vendors

Like they did with the CFPB ability-to-repay mortgage rules that required implementation in January, banks should also define how they will track the progress of their compliance plans, as well as who will review the progress plans, Welch says. The new regulatory changes should be included in audit reviews, defining testing procedures, which should then be tracked and the results reported.

Welch adds that community banks that have contracts with any third parties, such as document preparation companies or settlement agents, should discuss and evaluate those vendors’ implementation plans, and they will need a back-up plan should a vendor not fully implement the required changes prior to the effective date.

Many community banks will rely on their vendors to make the necessary changes to their mortgage disclosure forms to comply with the new CFPB requirements, but community banks and their staff will still need to understand the changes and that’s going to involve a significant amount of time and money in training, says Linda Albrecht, a principal at Eide Bailly LLP in Mankato, Minn. “Banks need to learn how to actually get to the new loan estimates within the disclosures, which used to be in two documents but are now in one combined document,” Albrecht says. “It’s going to be a matter of getting the mechanics down and knowing what goes where.”

It’s also important that community banks get from their vendors’ timelines for rollout of document changes, so banks can appropriately test them once they are released, says John Moniak, senior manager regulatory compliance at Wipfli LLP in Edina, Minn. “These disclosures are going to be a complete change from the current forms in the way they look, and how they impact the application and closing phases,” he says.

Community banks should also know what they will need to do to help their vendors allow their institutions to implement these changes, recommends John Liston, loan origination products director for Associated Software Consultants Inc. in Middleburg Heights, Ohio.

Katie Kuehner-Hebert is a writer in California.