‘Simplified’ Mortgage Disclosures Won’t Be a Simple Change for Credit Unions

By Jonathan Bundy

The Consumer Financial Protection Bureau’s first six mortgage rules became effective in January and delivered a major helping of compliance details for credit unions to digest. Still, for many credit unions, complying with the new rules didn’t fundamentally change the mortgage process for members. Complying with the seventh new rule, however, will absolutely change the disclosures and mortgage process for your members.

The CFPB issued the final rule requiring new disclosures at application and prior to closing for most closed-end mortgage loans in October 2013. Although it doesn’t take effect until August 2015, it’s a good idea to start taking a look at the new rule well before the start of the new year.

Four Disclosures Become Two

As directed by the Dodd-Frank Act, the CFPB has combined separate disclosure regimes under the Real Estate Settlement Procedures Act (RESPA) and the Truth in Lending Act (TILA). The two sets of disclosures have long been a confusing aspect of the mortgage lending process for the members receiving the disclosures and for the mortgage lenders trying to explain them.

The two new disclosures under the seventh rule are designed to simplify the process:

  • The Loan Estimate: This disclosure replaces the Good Faith Estimate under RESPA and the early Truth in Lending disclosure under TILA. The credit union must provide the Loan Estimate to applicants no more than three business days after the application is received. The Loan Estimate will provide the member with an estimate of the mortgage payments over the life of the loan and the closing costs the member can expect.
  • The Closing Disclosure: This disclosure combines the HUD-1 disclosure with the final Truth in Lending disclosure. It will also include a detailed account of the settlement charges and places new limits on the amount the closing costs can differ from the Loan Estimate to the Closing Disclosure. Unlike the current closing disclosures, which are usually provided at closing, credit unions must provide the new Closing Disclosure to members at least three days prior to closing.

Don’t Let the Implementation Date Lull You

As you work on your strategic plan for 2015, keep in mind that you’ll need to devote considerable resources to training your staff to work with the new disclosures. You will want to time any major new initiatives so they won’t coincide with implementation of the new disclosures in August 2015.

Implementing the new disclosures will not be a minor adjustment — it will be an overhaul of the mortgage process from application to closing. Pay special attention to the new timing requirements for each disclosure as your credit union re-tools the end-to-end process flow for a mortgage loan.

Preparing to train your staff well in advance of this change is important to maintain the quality of your member service.

Jonathan Bundy is a Regulatory Compliance Manager for CUNA Mutual Group. He can be reached at Jonathan.Bundy@cunamutual.com or 608.665.7101.

Strategic Link is the NWCUA’s wholly-owned service corporation, using the power of aggregation to provide the Association’s member credit unions with exclusive high-quality, competitively-priced products and discounted services. Contact Director of Strategic Partnerships Craig Reed today to find out how Strategic Link can help your credit union save money while meeting its goals in 2014 and beyond: creed@nwcua.org.

Posted in Compliance.