Compliance Corner


Disclosure Closure

By Kevin T. Kane

For more than 30 years creditors have been required to provide two separate disclosure notices to consumers when they apply for a residential mortgage loan. The two disclosures include the Real Estate Settlement Act Good Faith Estimate disclosure, identifying closing costs, and the Truth in Lending Act disclosure, identifying the cost of credit involving mortgage transactions.

The Dodd-Frank Wall Street Reform and Consumer Protection Act directed the Consumer Financial Protection Bureau to integrate the RESPA-TILA mortgage loan disclosures to make them more consumer-friendly. Last November the CFPB issued its final rule to simplify and improve those disclosures, as Congress directed.

The bureau’s final disclosure rule applies to most closed-end consumer mortgage loans. It does not apply to home equity lines of credit, reverse mortgages, or mortgage loans secured by a mobile home or by a dwelling that is not attached to real property.

Effective August 2015, mortgage lenders will be required under the rule to issue two new types of integrated consumer disclosures. The Loan Estimate form, which will replace both RESPA’s Good Faith Estimate form and the early TILA disclosure, are designed to detail for consumers the key features, costs and risks of a mortgage they might obtain. The new CFPB rule and its official interpretations (on which creditors and other persons can rely) contain detailed instructions as to how each line on the Loan Estimate form should be completed.

The second form, the Closing Disclosure, will identify all the closing costs of the mortgage transaction. The Closing Disclosure replaces the current form used to close a loan, the HUD-1, which was designed by HUD under RESPA. It also will replace the revised Truth in Lending disclosure. Again, the final CFPB rule includes detailed instructions on how to complete the new form through the use of examples.

Content and timing

The Loan Estimate disclosure form must be delivered by the creditor to the consumer no later than three business days after the consumer applies for a mortgage loan. The final rule delineates what constitutes an “application” for these purposes, which consists of receiving the consumer’s name, income, Social Security number to obtain a credit report, the property address, an estimate of the value of the property and the mortgage loan amount sought. This is a similar definition of an application used under RESPA.

Mortgage Rules Resource

ICBA’s Mortgage Rules Resource Center, an ICBA Web page, includes summaries and other accessible resources on various new mortgage rules issued by the Consumer Financial Protection Bureau. ICBA will continue to update the page, located under the Advocacy section of the association’s website,, as new information and resources become available.

Also, ICBA policy experts Ron Haynie ( and Elizabeth Eurgubian ( are available to answer questions.

The Closing Disclosure form must be delivered to the consumer at least three business days before the consumer closes on the loan. If the creditor makes certain significant changes between the time the Closing Disclosure form is given and the closing—specifically, if the creditor makes changes to the Annual Percentage Rate above 1/8 of a percent for most loans (and 1/4 of a percent for loans with irregular payments or periods), changes the loan product, or adds a prepayment penalty to the loan—the consumer must be provided a new form and an additional three-business-day waiting period after receipt of the new form.

Disclosure thresholds

Similar to existing requirements under RESPA’s Good Faith Estimate form and HUD-1 guidelines, the new mortgage disclosures have comparable restrictions on circumstances where the consumer is required to pay more for settlement services delineated on the Closing Disclosure than estimated on the Loan Estimate disclosure.

Unless an exception applies, the charges identified on the Loan Estimate disclosure for the following services on the Closing Disclosure cannot increase:

  1. the creditor’s or mortgage broker’s charges for its own services;
  2. charges for services provided by an affiliate of the creditor or mortgage broker; and
  3. charges for services for which the creditor or mortgage broker does not permit the consumer to shop. (Charges for other services can increase, but generally not by more than 10 percent, unless an exception applies.)

The exceptions include, for example, situations when:

  1. the consumer asks for a change;
  2. the consumer chooses a service provider that was not identified by the creditor;
  3. information provided at application was inaccurate or becomes inaccurate; or
  4. the Loan Estimate expires.

Kevin T. Kane (, a former FDIC regulator, is president of Financial Regulatory Consulting Inc. in New York.