BLOG VIEW: Aug. 1, 2015, looms for mortgage lenders across the nation. With less than 10 months remaining until the Consumer Financial Protection Bureau's (CFPB) new Real Estate Settlement Procedures Act (RESPA) and Truth in Lending Act (TILA) requirements go into effect, lenders and vendors alike are kicking their preparations into high gear.
Having a keen understanding of what's ahead is more important than ever. Educating staff and vendors on RESPA/TILA will help smooth the implementation process and create the environment needed to have a seamless transition.
Even when lenders understand the impact of RESPA/TILA, there are still logistical challenges to work through. While Aug. 1 will be here soon, now is the time to evaluate products and strategize for how to implement the workflow changes ahead.
Timing Is Everything
Much of the attention on RESPA/TILA has focused on the actual disclosure documents. This is a very critical part of the new changes, but when it comes to the new rules, workflow and delivery timing are equally important.
For example, the new rules indicate that an initial loan estimate must be delivered no later than three days after receiving an application from both the creditor and broker. Additionally, the loan application must be received seven days prior to closing. For revised loan estimates, a revision must be received within three business days of receiving sufficient information to establish a change of circumstance to the loan. Under RESPA/TILA, revised loan estimates must be received four specific business days before closing.
The new regulations also create a shift in disclosure timing. The CFPB's reform will not allow for loan estimates to be provided with or after the closing disclosure, with a revised loan estimate sent within one business day of rate lock.
Recognize Application Issues, Update Your Policies
When it comes to RESPA/TILA, understanding the requirements is half the battle. More than a document issue, this is a workflow issue. Lenders must adhere to these changes by allotting extra time to ensure that all compliance standards are intact throughout the entire disclosure process.Â
It is critical that lenders update policies and procedures to maintain compliance. Identifying areas of improvement by updating business processes, planning for operational changes and recognizing how products, departments and staff might be affected, can all help drive a positive outcome. I would recommend that your management team start enforcing the new disclosure rule timings at least two months in advance of the deadline. This will give your staff the opportunity to transition to the new procedures without incident and avoid losing the support of valued Realtors.
Many lenders are turning to automated compliance engines to test loans prior to closing and to document the delivery and fulfillment of documents in the appropriate time frames. The importance of preparing for a new way of doing business is critical to maintain success in a new regulatory environment.
If you have started preparing, you're in good shape. If not, there is still time to vet technologies, evaluate policies and educate staff – but time is running short. In general, lenders should expect their technology partners to be ready to support RESPA/TILA changes in the first quarter of 2015. Depending on the size of the organization, lenders should also begin testing as early as six months in advance of the August deadline.
By implementing a strategic approach, educating their staff and testing their plans in advance, lenders will ultimately be prepared for what's ahead.
Leonard Ryan is founder and president of Laguna Hills, Calif.-based QuestSoft, a provider of automated compliance solutions for the mortgage industry. He can be reached at firstname.lastname@example.org.
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