When the TILA-RESPA Integrated Disclosure Rule goes into effect on August 1, 2015, the HUD “Shopping for Your Home Loan: Settlement Cost Booklet” will be replaced with the CFPB “Your home loan toolkit: A step-by-step guide.” This new Toolkit satisfies the RESPA requirement per 12 CFR §1024.6 and the new TILA requirement per 12 CFR §1026.19(g). The Toolkit is to be disclosed in conjunction with closed-end loans for the purchase of 1-4 family residences, condominiums or townhomes.
The aims of the Toolkit are: 1) to notify consumers of the steps they need to take to get the best mortgage for their situation; 2) to help consumers understand their closing costs and what it takes to buy a home; and 3) for consumers to understand how to be successful homeowners.
The Toolkit is divided into three sections:
Section 1 helps the consumer choose the best mortgage for their situation. This section is further divided into the following parts:
- Define what affordable means to you. The consumer is asked to fill out a worksheet in four steps. The first step calculates their total monthly home payment, including principal and interest, mortgage insurance, property taxes, homeowner’s insurance, and applicable HOA or condominium fees. The second step estimates the percentage of their income spent on a monthly home payment. The third step calculates what is left after subtracting their monthly debts such as car payments, student loan payments, credit card payments, and child support or alimony. The last step establishes what monthly home payment the consumer will be comfortable paying.
- Understand your credit. The consumer is asked to weigh their options on whether to use their current credit rating or wait to improve their credit rating.
- Pick the mortgage type that works for you. The consumer is asked to choose between a fixed rate or an adjustable rate mortgage.
- Choose the right down payment for you. The consumer is educated about different down payment options and the possibility of having PMI on the loan.
- Understand the tradeoff between points and interest rate. The consumer can reference a chart that compares three points scenarios which affect the monthly payment over the life of the loan.
- Shop with several lenders. The consumer is asked to make a list of several lenders, getting the facts from the lenders on their list, obtaining at least three written offers, and, finally, comparing the total loan costs.
- Choose your mortgage. The consumer is informed about their intent to proceed and rate locks.
- Avoid pitfalls and handle problems. The consumer is given a table with hypothetical pitfalls and problems, including advice on how to deal with these situations if they arise.
Section 2 explains the closing process to the consumer. This section is further divided into the following parts:
- Shop for mortgage closing services. This part explains shopping for closing agents, title insurance, home inspectors, and home appraisers.
- Review your revised Loan Estimate. The consumer is educated about how the Loan Estimate can change.
- Understand and use your Closing Disclosure. The consumer is given a detailed breakdown of the five page Closing Disclosure.
Section 3 provides follow-up information to the consumer about owning their home. This section is further divided into the following parts:
- Act fast if you get behind on your payments. The consumer is given information on how to contact their mortgage servicer.
- Keep up with ongoing costs. The consumer is reminded about home maintenance and repairs, and for compensating for taxes and homeowner’s insurance if they do not have an escrow account.
- Determine if you need flood insurance. The consumer is asked to explore their flood insurance options at FloodSmart.gov.
- Understand Home Equity Lines of Credit and refinancing. The consumer is introduced to a brief overview of HELOCs and refinancing options.
Lenders are required to disclose the Toolkit to consumers not later than three business days after receipt of an application. A business day is defined in 12 CFR 1026.2(a)(6) as “a day on which the creditor’s offices are open to the public for carrying on substantially all of its business functions.” Although the Toolkit must be provided not later than three business days after receipt of an application, Federal Register Vol. 80, No. 62 notes that the CFPB encourages all market participants “to provide the [Toolkit] to consumers at any other time, preferably as early in the home or mortgage shopping process as possible.”
The Toolkit can be purchased through a mortgage document vendor or the U.S. Government Printing Office. The CFPB has created two sizes for the Toolkit: 1) a letter size version; and 2) a version designed to fit a typical business envelope. Lenders can add their logo and contact information to the Toolkit if they so choose. The Toolkit can also be provided in electronic format. An interactive Toolkit can be found at http://files.consumerfinance.gov/f/201503_cfpb_your-home-loan-toolkit-web.pdf.