1. THE GOOD, THE BAD, AND THE BURDENSOME 1
The Good, the Bad, and the Burdensome: the New TILA-RESPA Disclosure Requirements
Kristina Kivi
University of Maryland University College
Perhaps one of the most perplexing pieces of legislation for financial institutions
operating in the United States is the Truth in Lending Act (TILA). This law, colloquially known
to those in the industry as Regulation Z or Reg. Z, dictates specific disclosure requirements on all
manners of credit; from credit cards offered to college students to reverse mortgages. Arguably,
the strictest disclosure requirements are those concerning mortgages. Beginning August 1st of
this year, financial institutions must provide disclosures for certain mortgage transactions under a
new format designed by the Consumer Financial Protection Bureau. While the new disclosure
format is much easier for the applicant to understand, it poses a particular difficulty for lenders:
Depending upon the type of mortgage loan applied for, lenders must utilize two separate systems
and protocols in order to fulfill the new disclosure requirements.
As mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act of
2010, the Consumer Financial Protection Bureau (CFPB) was formed in reaction to the 2008
market crash. Due to the deceptive practices some mortgage lenders engaged in, consumers
could not recognize unfair loan terms put forth in their mortgage disclosures. One of the chief
concerns for the CFPB was to consolidate the four overwhelming and difficult to understand
required disclosures for mortgage applications (Stewart, 2014). These four documents consisted

2. THE GOOD, THE BAD, AND THE BURDENSOME 2
of the Good Faith Estimate (GFE), the early TILA disclosure, the HUD-1 Settlement Statement,
and the final TILA disclosure. After two years of ruminating upon the necessary changes, the
CFPB began a nearly year-long period of consumer research and public outreach to determine
whether the new format met the needs of mortgage applicants (Consumer Financial Protection
Bureau, 2014).
The upcoming consolidation will combine the TILA disclosures with the HUD-1
Settlement Statement and Good Faith Estimates required under the Real Estate Settlement
Procedures Act, also known as RESPA (Consumer Financial Protection Bureau, 2015). These
new disclosures will be know as the “Loan Estimate” and “Closing Disclosures” under TILA-
RESPA (Consumer Financial Protection Bureau, 2014). The new Loan Estimate is required to be
presented to the consumers within three days of finalizing the loan application and prior to the
applicants indicating their intent to proceed. This document is a combination of the early TILA
disclosure and the GFE (Consumer Financial Protection Bureau, 2014). Closing Disclosures,
consolidating the HUD-1 Settlement Statement and the final TILA disclosure, needs to be
provided to the applicants three days prior to the consummation of the loan (Consumer Financial
Protection Bureau, 2014). Consummation is when the applicants become contractually obligated
to the lender for their mortgage and its timeline varies by state law (Consumer Financial
Protection Bureau, 2014). As there are no changes to the delivery requirements for the
disclosures, those changes favoring the consumers relate specifically to the new document
format.
Prioritizing the needs of mortgage applicants, the CFPB managed to create easier to
understand disclosures with three major changes: the documents rely on words instead of

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numbers to delineate subsections, the most relevant information for their loan is on the first page
of each disclosure, and the Loan Estimate and Closing Disclosure follow the same format
(Consumer Financial Protection Bureau, 2014). As studied by Lacko and Pappalardo (2010),
mortgage applicants claimed that the early format of their disclosures “did not convey key costs
and risks” associated with their loan. In fact, their study showed that only 61% of those
participating applicants correctly answered questions in regard to their mortgage (p. 519). The
prototype for the new disclosure increased that number to 80% (Lacko & Pappalardo, 2010, p.
519). A key finding of this study was that consumers now felt that they were able to comparison
shop for their mortgage instead of accepting terms that were unfavorable due to lack of
comprehension (Lacko & Pappalardo, 2010, p. 520). While the new disclosures will certainly
provide more peace of mind for mortgage applicants, the new combined TILA-RESPA format
poses significant difficulties for mortgage lenders and brokers.
As mentioned previously, the new disclosure format pertains to most mortgage loans. The
exceptions to this new rule are home equity lines of credit, reverse mortgages, and any mortgage
loan in which the dwelling is not attached to real property (Consumer Financial Protection
Bureau, 2014). Mortgages that fall under those three categories will still utilize the old format for
loan disclosures (Consumer Financial Protection Bureau, 2014). For mortgage lenders and
brokerage firms, this means that they are now required to use two separate protocols and
computer systems for their loan products. This is especially difficult with regard to the Closing
Disclosures. Under the previous system, a settlement company prepared the HUD-1 Settlement
Statement while the lender provided the applicant with the final TILA disclosure. By forcing
these two disclosures into one document, this will now require the settlement company and

4. THE GOOD, THE BAD, AND THE BURDENSOME 4
mortgage lender to cooperate at a much earlier timeframe than before (Collins, 2015). TILA-
RESPA does not mandate which entity provides the Closing Documents, though most large
commercial banks, such as Wells Fargo and Bank of America, are making the decision to do it
themselves instead of relying on a settlement company (Collins, 2015). They believe that this
will cut down on the risk of being out of compliance with the new regulation, foregoing any
penalties and increasing the damage to their reputation (Collins, 2015). Ultimately, the
difficulties instigated by the new regulation are a matter of time and monetary limitations.
Regulation overhauls by the Consumer Financial Protection Bureau have a profound
effect on both consumers and financial institutions. Certainly one of the most difficult and
intensely disruptive changes brought forth by the CFPB is mandating the combination of the
TILA and RESPA disclosure requirements for mortgage loans. Come August 1st, mortgage loan
applicants will hopefully find their new loan documents easier to understand and use them as
tools to make the best choice concerning their lender. For mortgage loan originators, these newly
formatted disclosures shall prove a strain on loan closing timelines and on budgets for system
requirements.

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References
Collins, B. (2015). CFPB’s new closing disclosure form is driving lenders ‘crazy.’ National
Mortgage News, 39(19), 1. Retrieved from
http://search.proquest.com.ezproxy.umuc.edu/docview/1655589590?accountid=14580
Lacko J. and Pappalardo, J. (2010). The failure and promise of mandated consumer mortgage
disclosures: evidence from qualitative interviews and a controlled experiment with
mortgage borrowers. The American Economic Review, 100(2), 516-521. doi:
http://dx.doi.org.ezproxy.umuc.edu/10.1257/aer.100.2.516
Stewart, K. (2014, December 15). Preparing for TILA-RESPA changes. Retrieved from
https://www.wolterskluwerfs.com/tila-respa/article-12152014.aspx
Consumer Financial Protection Bureau. (2015). Amendments to the 2013 Integrated Mortgage
Disclosures Rule under the Real Estate Settlement Procedures Act (Regulation X) and the
Truth In Lending Act (Regulation Z) and the 2013 Loan Originator Rule under the Truth
in Lending Act (Regulation Z). TILA-RESPA Rule §§ 1024.5, 1026.3, and 1026.19.
Retrieved from:
http://files.consumerfinance.gov/f/201501_cfpb_final-rule_trid.pdf
Consumer Financial Protection Bureau. (2014). TILA-RESPA integrated disclosure rule: small
entity compliance guide. RetrievedRetrieved from:
http://files.consumerfinance.gov/f/201409_cfpb_tila-respa-integrated-disclosure-
rule_compliance-guide.pdf