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The CFPB wants to identify the “pain points” in the closing process. Image: Fotolia.
The CFPB wants to identify the “pain points” in the closing process. Image: Fotolia.

Closing Process Is Next on the CFPB's 'To-Do' List

JAN 22, 2014 3:28pm ET
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Like the battery featured in an old television ad, the Consumer Financial Protection Bureau “just keeps going and going and going.”

Although operating fully for only about a year, the agency has already rolled out thousands of pages of new regulations and dispensed penalties totaling nearly $2 billion—and counting.

The regulations and penalties, mostly targeting mortgage lenders and credit card issuers, have made it clear that the CFPB is not walking softly, but is carrying a very large enforcement stick.

Mortgage lenders are struggling to understand and implement the consolidated real estate loan disclosure form and the qualified mortgage/ability-to-repay rules, which are fundamentally restructuring the way lenders originate loans and, to some extent, the loans they are offering. 

Now the agency is turning its attention to real estate closings. Given CFPB’s history to date, title agents should be, if not afraid, then certainly aware—very aware—of what the agency is doing in this area. While agents have undoubtedly felt some of the residual heat from the new mortgage rules, they will feel the burn directly if the CFPB points a blow-torch at the closing process. The agency has requested comments and agents should definitely provide them.

Looking for “Pain Points”

The request for comments explains that the CFPB wants to identify the “pain points” in the closing process in order to make it “more streamlined, efficient and educational.” Anyone familiar with reg-speak in the mortgage finance arena (think Real Estate Settlement Procedures Act and Truth-in-Lending) knows that “streamlined,” “efficient,” and “educational” invariably mean larger, more complicated and more expensive for financial institutions and consumers alike. These code words also signal that the nation’s forests are at risk. The CFPB produced more than 2,000 pages of text to explain and implement the QM regulations and the consolidated loan disclosure forms, alone. Streamlined? Their regulations are turning what had been two pages of consumer disclosures, into five.

Of course, it’s not just the length of any closing rules the agency might adopt, but what these rules might require that should concern us. The questions posed in the request for comments hint at the issues the agency is likely to address. Regulators want to know, among other things:

  • What parts of the closing process consumers find “confusing” or “overwhelming.”
  • How long the closing process takes.
  • Common errors consumers and industry practitioners have identified.
  • How consumers seek advice during the closing.
  • What documents consumers find “particularly confusing.”
  • Whether consumers feel “empowered” at closings.

“Errors.” “Confusing.” “Empowered.” You don’t need a crystal ball to predict where the agency might be heading:  More disclosures for consumers, more compliance concerns (and more liability) for practitioners, and possibly sweeping changes in the closing process, requiring huge investments of time and money by settlement services providers.  

An Oncoming Train

Although this looks and feels an awful lot like an oncoming train, it is not yet traveling at full speed.  We have an opportunity to change its direction and possibly to affect its final destination.

There is no question that the CFPB has immense powers, the authority to levy fines of $25,000 per day not the least among them. There also is no question that the agency’s priority is protecting consumers.  That’s why it was created.

But agency officials have demonstrated a willingness to consider industry concerns. They backed away from an initial QM proposal that would have included title insurance premiums in the APR calculation and they modified (although not as much as critics wanted) a policy interpretation that counts fees paid to lender affiliates—including title insurance premiums—toward the 3% qualified mortgage cap. (Under the revised interpretation, only the portion of the fee actually retained by an affiliate must be counted.)  In these instances and others, agency officials have responded in some measure to evidence that their actions might have unintended adverse consequences.

CFPB’s desire to improve the mortgage lending process and prevent abuses (real or perceived) that threaten consumers is unquestioned. Its theoretical understanding of the mortgage lending process is also clear. But the agency’s practical understanding of how the industry operates and what is required for it to operate efficiently for consumers and effectively for lenders and service providers is imperfect, at best.

A Dangerous Gap

That comprehension gap can be dangerous for the health of title agents and other settlement services providers, who will have to cope with any unintended consequences of rules the CFPB imposes on the closing process. That’s why it is essential for agents to reply to the agency’s request for comments. 

Your input can help regulators understand how the rules they create at their desks will play out in the real world. You should:

  • Explain how the closing process works—what components and conditions are necessary for the process to function smoothly and cost-effectively.  
  • Identify any problems you perceive, but also emphasize the need for clarity and simplicity in any new regulations the agency adopts and remind regulators that increasing the information provided to consumers does not always increase their understanding (think RESPA again). Sometimes it has the opposite effect.
  • Above all, urge regulators to be aware of the financial burden on the industry, and on small practitioners in particular, when software changes and technology upgrades are needed to implement new procedures and comply with new rules.

Comments are due by Feb. 7. They should be identified by Docket No. CFPB-2013-0036, and can be submitted either electronically (http://www.regulations.gov.) or by mail/hand delivery or courier to:  Monica Jackson, Office of the Executive Secretary, Consumer Financial Protection Bureau, 1700 G Street NW., Washington, DC 20552.

There is no guarantee that your comments will influence what the agency does or doesn’t do in the closing area, but you will have absolutely no hope of influencing the outcome if you don’t comment.

Joe Drum is executive vice president in charge of agency operations for WFG National Title Insurance Co.

Comments (4)
After over 40 years of being in this business, I see that the consumer is more and more confused. The TIL should show their interest rate, finance charge, amount finance and total pay back.....just like it did before someone decided APR, etc. was easier for the consumer. Same for the new HUD. The old HUD which broke down every cost and was a "full disclosure" of all costs was easier for the consumer as well. As to other documents in loan packages, I see no reason to have four or five disclosures regarding occupancy, name affidavit and a couple more. Truly, I have little to no questioning during my closings because I set up the documents so that any question that arises from the document being presented is generally answered by the next in line. It is an easy process and has been successful for me all these years. No push and shove closing by this company. Closings last anywhere from 50 minutes to 1.5 hours or more..depending upon the client's comprehension. I will say more time is spent on the HUD than any other document as we want to make sure the client fully understands where their money is going. I do not see how closings by my company could be easier for the client to understand. No one leaves the table with questions.
Posted by | Thursday, January 23 2014 at 7:53AM ET
Excellent article & we will definately send our comments. Simplicity is the key. Every closer has seen that glazed-over look on their client's face after they see what they owe today and what their payment will be.
Posted by | Thursday, January 23 2014 at 10:08AM ET
I view these regulations as a another way of keeping attorneys out of the closing process. When I started practicing law in 1977 all closings in North Jersey were conducted by attorneys, as we moved on in the 80's and 90's title companies were taking over the role of attorneys and now title companies probably conduct more closing s than attorneys do. I believe that in the end it will be the consumer that will be hurt because title companies will be giving legal advice where they mY not be competent to do so.
Posted by | Friday, February 07 2014 at 10:45AM ET
Attending hundreds of closings with my clients over the last 20 years has provided me the opportunity to participate in the closing process and arrive at the following conclusions.
1.residential consumers are primarily interested in buying or selling a home.
2. They don't care about the settlement service providers rules, ethics, legal liabilities or government compliance issues...they just want to purchase a home.
3. Consumers care about the ever increasing cost of purchasing a home as a result of additional government attempts to protect them, while being confused further by the process.
4. Fifty states regulate real estate closing processes differently, some requiring attorneys for all closings, others allow non-lawyers to perform those duties. Arkansas closings are performed by closing companies acting as agents for title insurance underwriters...and Arkansas has the lowest incidence of errors and omissions claims and real estate closing litigation per capita in the country. Attempts by the Federal Government to make a one-size fits all set of rules for all 50 states is not only non-productive, but borders insanity.
It appears to me attempts to make unrealistic laws and regulations with stiff penalties for non-compliance is not in the best interests of the consumer but in the interest of revenue generation for a bureaucratic regulatory entity. The costs of implementation of those laws will simply be passed onto the consumer (economics 101)resulting in fewer consumers being able to afford housing.
Sometimes, the best policy is to not allow bureaucrats who have never owned a home to make policy about purchasing a home. Most of the rule makers are renters of apartments, so how can they possible have any idea of the costs and steps involved in the home buying process?
6. That being said, areas needing improvement in the settlement service providers professions is disclosure of affiliated business arrangements. Many closing companies are owned by banks, but that fact is not disclosed to consumers at closing. Recently, we attended a closing with a consumer at a closing firm owned by the lender the buyer was using to finance the purchase. The lender was present at the closing and instructed the Buyer to sign the mortgage and note without any stated APR. We advised the client this was improper and not to sign. The lender suggested the buyer sign and the lender would fill in the APR later. We refused to proceed until all documents were completed by the lender. The lender left and returned a few minutes later with completed documents. This was the first time this happened in one of my closings in my career. The attempt is a violation of RESPA and other TIL laws and if we had ignored the documentation, we could have been held liable for any damages to the consumer in our state because the principal broker is the only one with a fiduciary duty to the consumer. Again, this incident is rare, but still needs no additional rules or laws...we already have them on the books...the existing laws just need to be enforced.
5.
Posted by | Friday, February 07 2014 at 10:56PM ET
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