(Editor’s note: This is part one of a three-part series gauging the industry’s initial reaction to proposed updates to the Consumer Financial Protection Bureau’s TILA-RESPA Integrated Disclosures rule that were introduced in late July.)
The Consumer Financial Protection Bureau (CFPB) recently issued a set of proposed updates to its Know Before You Owe mortgage disclosure rule, also known as the TILA-RESPA Integrated Disclosures (TRID) rule.
The updates include numerous clarifications and technical corrections related to certain aspects of the rule, as well as certain new provisions, including new tolerances for calculating the total of payments and a new section related to privacy and the sharing of borrower information. All of the proposed changes are outlined in a 293-page document that was released by the bureau in late July.
Comments on the proposal are due by Oct. 18. But ahead of mortgage companies submitting their official feedback, MortgageOrb interviewed a host of experts from across the industry to get their initial reactions to the proposed revisions. In this first installment of a three-part series, we interviewed Andy Dunn, senior attorney with Wolters Kluwer; Phil McCall, chief operating officer with ARMCO; and Michael Vitali, senior vice president and chief compliance officer at LoanLogics.
Q: At first glance, do you think these proposed changes go far enough to address the industry’s requests for greater clarity and direction? What areas of the TRID rule do you think could still use greater clarity, even if these proposed changes are adopted?
Dunn: The proposed rule from the CFPB shows it is working hard to respond to the feedback it has received from the industry. This is why it is also asking for feedback on a provision-by-provision basis from the industry on the rule’s effective date.
McCall: Yes and no. The bureau primarily incorporated a lot of the informal guidance provided through multiple webinars and Q&A sessions. A majority of the revisions bring clarity to existing commentary or add commentary to clarify the intent or interpretation of a particular portion of the rule. Although this additional clarity will assist lenders in resolving some of the challenges faced on the secondary market today, the bureau failed to address the primary request from the industry: specific cure guidance for various errors and omissions made on the loan estimate or closing disclosure forms.
Vitali: The proposed changes go a long way toward rule clarity. The CFPB seems to have made a concentrated good-faith effort to help lenders better understand the rule and what needs to be done to comply in most instances. There are certainly pros and cons.
Q: Which changes would you say are most helpful? Are there any that you would say are a “slam dunk” in terms of addressing the concerns raised?
Dunn: One of the biggest updates for lenders is the addition of formal guidance that allows them to share a copy of the loan estimate and closing disclosure with the borrowers’ Realtors. Lenders have been uncertain of whether they’d be violating the privacy restrictions of the Gramm-Leach-Bliley Act if they shared this information. Another helpful change is the additional guidance around financial calculations, such as the calculating cash to close table; principal reduction/curtailment; summary of transactions table; and escrow account disclosures. In working with our customers, we found that some of the most recurring trouble spots in the Know Before You Owe rule were tied to these financial calculations.
McCall: Most helpful – detailed amended interpretations for disclosure of valid changed circumstances occurring after the closing disclosure is provided but prior to consummation. Slam dunk – permissibility to share information (e.g., closing disclosure) with parties involved in the transaction, primarily real estate agents.
Vitali: To me, the most helpful is the clarification of the “black hole” – the use of the closing disclosure to report changes after the final loan estimate is issued. This still needs to be fleshed out a little, and lenders should provide comments to ensure that it works as it should. Once a lender issues its final loan estimate, any bona fide fee change, including a rate lock extension fee for a delayed closing, should be reportable on a revised closing disclosure.
Q: What about the fact that the bureau is not going to allow issue of “cures” on the table – is that a mistake on the bureau’s part? And if so, why? What do you see as being the central problem with regard to how cures are defined under the current rule?
Dunn: Consumer advocate groups, lenders and trade associations would have the best perspective to share. Wolters Kluwer’s focus is on helping our customers meet the compliance requirements of the final rule.
McCall: This is not a mistake on the bureau’s part – the bureau has conclusively stated that it has no intention of providing any additional “cure” guidance, neither in the current proposal nor in any future proposals. The bureau’s position is that allowing provisions for expanded cures will detract from the intent of the rule (e.g., a good-faith determination and disclosure of actual settlement costs). As an industry, the mortgage industry believes that the bureau should provide a cure for all possible errors that may arise, including, but not limited to, complete omission of actual settlement costs or required terms of the loan. From a compliance perspective, I agree with the bureau’s intent that lenders must have responsibility for the good-faith determination and disclosure of actual settlement costs and required loan terms. The bureau continues to provide the standard cure mechanism that existed under the prior RESPA (Regulation X) rule. The challenge the industry faces is that under RESPA, lenders were not solely responsible for all errors and omissions on the closing disclosure, and the move of the regulation from RESPA to TILA (Regulation Z) imparts higher penalties and sanctions than those previously exposed under RESPA. It is apparent that the industry, as a whole, has still not adapted to the new rule and the new way of doing business.
Vitali: This is understandable. The new rules provide instances for cures in the event of fee tolerance violations and minor clerical error. To allow cures for disclosures with inaccurate loan information or timing issues could be harmful to the consumer. To cure an inaccuracy or a late disclosure after the fact puts consumers at a disadvantage. They don’t get accurate information in a timely manner to make an informed decision. The industry has lived with the existing cures under TILA for quite some time now, so I guess we can continue “as is.”
Q: Do you see any potential increases in operating costs for lenders or third parties as a result of any of these changes? If so, which ones, and why?
Dunn: We are in the process of identifying what those costs might be, if any, so we can include the information in our comment letter to the CFPB on the proposed rule.
Vitali: I don’t see any major cause for increased costs, but I’m sure that lenders and loan origination system (LOS) providers will have their say on this subject. There may be some increase in the investment in compliance and quality, but such an investment should pay dividends in other ways.
Q: What are the potential impacts on software and systems (and the programming thereof) as a result of the changes?
Dunn: It’s too early to say at this point. We are actively reviewing the proposed rule to identify potential impacts to include them in our comment letter to the CFPB.
McCall: For ARMCO specifically, there will be very little impact on our system. The systems that will feel the biggest impact are the LOS and doc prep platforms.
Vitali: All lenders should be exploring the increased use of technology for quality and compliance in their loan manufacturing processes. Rather than reinvent the wheel, they should be exploring options that provide the software platform to perform their loan reviews, explore outsourcing their quality assurance/quality control processes or both. Before hiring more people, look for ways to do it with technology or outsourcing. Tie the expenses to the volume instead of adding fixed costs.
Q: Do you think these changes will help allay investor fears over TRID defects and, if so, to what degree? Where might concerns remain?
Dunn: This is a good question for the government-sponsored enterprises and institutional investors purchasing mortgage loans. Wolters Kluwer’s focus is on helping our customers meet the compliance requirements of the final rule.
McCall: Yes and no. The incorporation of unofficial guidance provided previously by the CFPB into the rule and commentary will help alleviate some of the secondary market angst and allow for smoother due diligence reviews. As to what degree, we will need time to observe how the secondary market reacts once the final rule is implemented.
Vitali: They should, but that remains to be seen, as there is always a fear of the unknown. The secondary market doesn’t want to be the guinea pig for TRID. As I mentioned earlier, other than the fee tolerance cures and cures for clerical typos, investors accepted loans with these existing TILA cures before, so why not now?
Q: Do you think the bureau will step up its enforcement of TRID violations after these rules are finalized?
Dunn: There is the possibility the CFPB will transition out of the informal grace period, currently in effect, and start enforcing the Know Before You Owe rule once the proposed changes are finalized. However, the bureau has not shared when the informal grace period will end, so there’s a possibility it could continue, following the proposed changes becoming final.
Vitali: I honestly don’t know. However, let’s face it – it has been pretty tolerant so far, and it is now putting out these proposals to clarify things, so it will probably expect lenders to respond accordingly and do what’s required. Its job, for now, anyway, is to protect the consumer.
Q: Do you think the bureau will need to update TRID again in the future? If so, why?
Dunn: It’s important for rules and regulations like Know Before You Owe to evolve with changes in the industry, consumer expectations and technology. Take, for example, the high adoption of smartphones by consumers. Currently, the model forms in the rule must be treated as promulgated forms when RESPA applies to the transaction. The design of these promulgated forms doesn’t provide the flexibility for consumers to easily read the disclosures on a mobile device. At some point, consumers will likely push for this convenience. This is why it’s important for the industry to work together and bring new ideas to the CFPB on how the rule can be improved so that it can include these changes in its rulemaking agenda going forward. Wolters Kluwer plans to include an addendum to our comment letter on this proposed rule that highlights any non-binding guidance we’ve received from the CFPB that has not been incorporated into the proposed rule. We think it would be good for consumers and the industry alike if any other non-binding guidance also became formal guidance, either now or in a future rulemaking event.
McCall: Yes. Periodic updates will be required in the future as LOS technologies continue to be enhanced and additional industry concerns are identified. Additionally, as the industry moves to create more consumer product varieties, regulatory rules generally follow, with additional oversight and new requirements.
Vitali: Most likely, yes. It just updated RESPA and TILA after all those years and now is proposing changes to a rule that was just implemented last October. My guess is it will need to update the rules at some point in the future, especially with the increased use of technology and social media. Things change, and the rules need to change with them.