In a huge win for the industry, the Consumer Financial Protection Bureau is taking another look at the Know Before You Owe rule, answering calls to make official a lot of the informal guidance given by the bureau.
The bureau wrote a letter on Thursday to eight industry trade groups acknowledging their concerns over compliance with the Know Before You Owe mortgage disclosure forms and letting them know that the bureau has begun drafting a Notice of Proposed Rulemaking on the Know Before You Owe rule.
CFPB Director Richard Cordray states in the letter:
We do recognize that incorporating some of the bureau’s existing informal guidance, whether provided through webinar, compliance guide, or otherwise, into the regulation text and commentary, would be helpful. We also believe that there are places in the regulation text and commentary where adjustments would be useful for greater certainty and clarity. Accordingly, we have begun drafting a Notice of Proposed Rulemaking on the Know Before You Owe rule. We hope to issue the NPRM in late July and look forward to your comments on it then. The Office of Financial Institutions, along with our Regulations and Markets team, will arrange one or two meetings in late May or early June, but before the NPRM is issued, to discuss further with you the Know Before You Owe rule. In the meantime, we look forward to continuing to receive your detailed feedback on the implementation of the Know Before you Owe rule.
Up until this point, the industry has been continuously told that “examiners will be squarely focused on whether companies have made good faith efforts to come into compliance with the rule.”
But this wasn’t enough for some companies in the industry, especially investors, since guidance was never made official.
When TRID first went into effect on Oct. 3, the 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. However, now six months post-TRID, it appears lenders have this whole TRID thing figured out, as the time to close a loan fell to a 12-month low in March.
Rather than lenders facing time-to-close issues, it is the secondary market that seems to be experiencing the biggest pain points from TRID at this point.
Chris Katopis, executive director at the Association of Mortgage Investors, recently told HousingWire, “The lack of clarity from CFPB has led to originators being unable to sell what would otherwise be considered good loans in the secondary market. This has led to at least one large originator being forced to close its doors. Others will follow.”
“The CFPB telling mortgage investors and other secondary market participants they are overreacting and that they just need to buy is unfair to the market and clearly not working. The CFPB cannot just tell investors to ignore the risk that the CFPB is reserving the right to change their mind and judge them after the fact. If the minor, technical TRID violations that are freezing the secondary mortgage market are truly not an issue, then CFPB should have no issue putting out official, clarifying guidance,” said Katopis.
Pete Mills, senior vice president of residential policy and member engagement with the Mortgage Bankers Association, one the biggest proponents for this change, explained that this new letter from Cordray is dealing with a set of issues that are impeding the ability of lenders to sell loans in the secondary market.
“The time-to-close argument has never really been an issue. The industry threw a lot of resources at that,” said Mills. “The real issue has been the diversity of opinion around certain aspects of TRID that has created some impediments on the flow from the originator into the secondary market.”
Mills explained that many investors said they need to see this informal guidance in a rule.
Rob Nichols, president and CEO of the American Bankers Association, another trade group listed in the letter, said, “The good thing they did with this period is that it is open-ended. The letter acknowledges that there are a number of uncertainties around the rule.”
“We appreciate Director Cordray’s responsiveness to our concerns about the CFPB’s Know Before You Owe rule. The agency’s interim steps and guidance efforts are welcome, and we agree that several issues will be best resolved in the rule-making process that is being initiated. We are particularly pleased that the notice of proposed rulemaking is on a fast track, which will accelerate and strengthen strong compliance regimes,” Nichols said.
“Many of the elements the industry identified for clarification or amendment were developed in ABA's compliance working group meetings, and we look forward to the opportunity to continue sharing banker feedback with the CFPB.”
National Association of Federal Credit Unions Director of Regulatory Compliance Brandy Bruyere commented on the news saying, “We appreciate Director Cordray’s consideration of our concerns regarding the need for greater clarity on the TRID rules,” said Bruyere. “This is a welcome first step and there is still a lot of work to be done in order to truly address the ambiguities in the TRID rule. We look forward to the bureau’s continuing efforts to facilitate the compliance process.”
