Mortgage disclosure ‘black hole’ fix effective June 1

A final rule removing a timing restriction for mortgage closing disclosures – referred to within the industry as a TILA/RESPA “black hole” – that could prevent a lender from charging otherwise valid closing cost increases is set to take effect June 1, according to a recent notice in the Federal Register.

The rule change, by the Bureau of Consumer Financial Protection (BCFP, formerly known as CFPB), revises the bureau’s Truth in Lending Act/Real Estate Settlement Procedures Act (TILA/RESPA) combined mortgage disclosures rule (also the “Know Before You Owe” mortgage disclosures rule). It addresses when mortgage lenders with a valid justification may pass on increased closing costs to consumers and disclose them on a closing disclosure.

The final rule removes a four-business-day limit for resetting cost “tolerances” on an initial or revised closing disclosure. Under the final rule, creditors “may use Closing Disclosures to reflect changes in costs for purposes of determining if an estimated closing cost was disclosed in good faith, regardless of when the Closing Disclosure is provided relative to consummation,” the bureau states in a summary.

As reported here previously, the rule change was approved this April.

BCFP Final Rule, ‘Know Before You Owe’ (Federal Register, May 2)