The mortgage-regulation balls are back in the air at the nation's largest regulator of consumer debt products.
Staying true to its announcement back in April, the Consumer Financial Protection Bureau released a set of proposed updates to its Know Before You Owe mortgage disclosure rule after industry calls asked for greater clarity and certainty on the rule.
However, despite the welcomed changes, the bureau failed to address one major concern the industry asked for clarity on, the secondary market.
After the Know Before You Owe mortgage disclosure rule, also called the TILA-RESPA Integrated Disclosures rule, went into effect on Oct. 3, 2015, there were initial hiccups and headaches centered on how long loans would take to close, potentially causing a lot of problems for consumers who are strapped for time.
But a lot of these have past, and once those problems subsides, mainly the secondary market was left to experience the biggest pain points from TRID at this point.
Besides these addressed changes below, the industry, for now, will be required to heed the original guidance the bureau put out that “examiners will be squarely focused on whether companies have made good faith efforts to come into compliance with the rule.”
Here are some of the key changes:
1. Tolerances for the total of payments:
Before the Know Before You Owe mortgage disclosure rule, the total of payments disclosure was determined using the finance charge as part of the calculation. The Know Before You Owe mortgage disclosure rule changed the total of payments calculation so that it did not make specific use of the finance charge. The Bureau is now proposing to include tolerance provisions for the total of payments that parallel existing tolerances for the finance charge and disclosures affected by the finance charge.
What this means:
This change would make the treatment of the total of payments disclosure consistent with what it was prior to the Know Before You Owe mortgage disclosure rule.
2. Housing assistance lending:
The rule gave a partial exemption from disclosure requirements to certain housing assistance loans originated primarily by housing finance agencies. The bureau’s proposed update would promote housing assistance lending by clarifying that recording fees and transfer taxes may be charged in connection with those transactions without losing eligibility for the partial exemption. The rule would also exclude recording fees and transfer taxes from the exemption’s limits on costs.
What this means:
Through the proposed update, more housing assistance loans would qualify for the partial exemption, which should encourage lenders to partner with housing finance agencies to make these loans.
3. Cooperatives:
The bureau is proposing to extend the rule’s coverage to include all cooperative units. With a cooperative, a buyer becomes a shareholder in a corporation that owns the property. The buyer is then entitled to exclusive use of a housing unit in the property. Currently, the rule only covers transactions secured by real property, as defined under state law. Cooperatives are sometimes treated as personal property under state law and sometimes as real property.
What this means:
By including all cooperatives in the rule, the Bureau would simplify compliance.
4. Privacy and sharing of information:
The rule requires creditors to provide certain mortgage disclosures to the consumer. The bureau has received many questions about sharing the disclosures provided to consumers with third parties to the transaction, including the seller and real estate brokers. The bureau understands that it is usual, accepted, and appropriate for creditors and settlement agents to provide a closing disclosure to consumers, sellers, and their real estate brokers or other agents.
What this means:
The bureau is proposing additional commentary to clarify how a creditor may provide separate disclosure forms to the consumer and the seller.
Mortgage Bankers Association President and CEO David Stevens commented on the proposed updates saying, “MBA appreciates the CFPB’s efforts to update and clarify certain aspects of the ‘Know Before You Owe’ rule. This particular regulation has a big impact on both borrowers and lenders, so it’s important that the Bureau and stakeholders continually reassess the implementation process to ensure its effectiveness. We look forward to commenting on the rule, and continuing to work with the CFPB to gain further clarity in order to improve this and other rules and regulations.”
National Association of Federal Credit Unions President and CEO Dan Berger, while positive on the news, is still hesitant on if the changes are complete enough.
“NAFCU appreciates the CFPB revisiting the TRID rule and, at first glance, there appear to be a few positive components that we strongly advocated for on behalf of our members,” said NAFCU President and CEO Dan Berger. “Most notably, the bureau has taken our advice regarding the codification of its informal compliance guidance.
“However, the bureau has not gone nearly far enough to address the numerous substantive compliance issues that have been highlighted by credit unions. Although our compliance experts will continue to analyze the proposal to identify its full impact, NAFCU believes this should be the first step in a process to create a mortgage disclosure rule that is workable for financial institutions and benefits consumers.”
The CFPB stated that it is allowing input from a wide range of stakeholders and invites the public to submit written comments on the proposal. Comments are due Oct. 18, 2016 and will be weighed before final regulations are issued.
