On June 24th, 2015 the Consumer Financial Protection Bureau (“CFPB”) issued a proposal to delay the August 1st, 2015 effective implementation date of its Truth-in-Lending Act (“TILA”) and Real Estate Settlement Procedures Act (“RESPA”) Integrated Disclosure legislation. Per the Congressional Review Act, a rule will take effect 60 days after the date on which Congress receives the rule. Due to an administrative oversight at the CFPB, the rule cannot be implemented on August 1st as originally proposed.
The newly proposed effective date for the rule, also known as “Know Before You Owe,” is October 3rd, 2015. These rules will require mortgage lenders to use two new disclosure forms – a “Loan Estimate” and “Closing Disclosure.”
What Does It All Mean?
Specific to the Loan Estimate and the Closing Disclosure, the CFPB was directed to integrate the mortgage loan disclosures under TILA and RESPA Sections 4 and 5. The Good Faith Estimate (GFE) and the initial Truth-in-Lending disclosure (initial TIL) have been combined into a new form: the Loan Estimate. Similar to the original forms, the new Loan Estimate form is designed to provide disclosures that will be helpful to consumers in understanding the key features, costs, and risks of the mortgage loan. The HUD-1 and final Truth-in-Lending disclosure (final TIL and, together with the initial TIL, the Truth-in-Lending forms) have been combined into another new form: the Closing Disclosure, which is designed to provide disclosures that will be helpful to consumers in understanding all of the costs of the transaction.
What Can You Do to Prepare?
Given the upcoming changes, how can you ensure you are prepared for each change and ready to manage the impact to your business? Here are a few things to consider:
First, do you have an implementation plan? An implementation plan does not have to be a huge undertaking, but should take into account a few key items. To begin – who in your organization has an interest in the project? These people are your stakeholders and should have input into the plan. Most companies include representatives from Finance, Internal Audit or Chief Risk Officer’s organization, Legal, and Information Technology.
An implementation plan should also take into account processes that need to change due to the new rules. A good way to determine what changes will be necessary is to undergo a gap analysis, which should be focused on the new rules and the business, operational, and technology changes that will be required to comply with the new regulations. A gap analysis should result in project prioritization, or a “critical path” of items, that must be completed to ensure compliance.
Critical path items are “must-haves” and should take precedence over process enhancements, which are beneficial, but not necessary for compliance. Finally – taking both stakeholder needs and gap analysis results into account, determine if the implementation plan will meet the required due date. If the answer is no, determine how the plan can be prioritized to complete all critical path items first.
Second, how is progress monitored? It is important to identify who will be responsible for reviewing progress to date and keeping all stakeholders apprised of progress and potential roadblocks. Creating a basic communication plan will ensure that project status is widely communicated and that all roadblocks are appropriately identified, prioritized, and resolved.
Stakeholder communication and status reporting are widely overlooked throughout the project planning process, and an ounce of prevention here is worth several pounds of cure where missed deadlines and abrupt course corrections are concerned. Understanding the implications of these new regulations and setting a timeline early will help ensure that you stay ahead of the game and smoothly navigate any changes as a result.