Information from RESPA/TILA Shift to Shape GFE Revamp

The Consumer Financial Protection Bureau seems to be farther along in its thinking about merging RESPA and TILA regulations than many suspected. Since last summer, the new bureau has mainly focused on devising the most informative and consumer-friendly good-faith estimate disclosures through numerous rounds of consumer testing and public input. Industry groups were impressed by this effort. But they were not sure how to properly evaluate the GFE prototypes without knowing where the CFPB is going with the Real Estate Settlement Procedures Act and Truth in Lending Act rules.

Bureau officials insisted they would perfect the GFE disclosure first and then work on merging the RESPA/TILA rules to implement the new disclosure form, which is given to borrowers three days after signing a mortgage application.

So it was a surprise when CFPB officials revealed that they have several objectives in rewriting the regs.

In announcing the formation of a panel of small businesses to review its mortgage disclosures, the bureau noted that it wants to tighten down on certain cost estimates in the good-faith estimate.

In addition, the bureau wants to develop an “integrated statement disclosure” that is provided to borrowers three days before closing.

CFPB officials also signaled to industry groups that they will concentrate on merging the RESPA/TILA regulations before finalizing the GFE disclosure form.

It's important to figure out the “basic rules of the road” so the lenders can fully evaluate the prototype disclosure forms, according to Anne Canfield, executive director of the Consumer Mortgage Coalition.

“We are very pleased that CFPB is going to take up merging RESPA and TILA first before they finalize any disclosure requirements,” Canfield told NMN.

Currently, there is a 10% tolerance on cost estimates when a lender recommends an independent settlement service provider to the borrower or requires the use of a certain provider. If the final cost exceeds 10%, the lender must pay the difference.

The bureau wants to move to a zero-tolerance level. “This is intended to make the loan estimate more reliable for consumers,” the CFPB says in a statement regarding the small business review panel.

Ballard Spahr partner Richard Andreano said zero tolerance would create greater risk for lenders. “Lenders will be concerned,” he said, if such an approach is part of the RESPA-TILA proposed rule the CFPB is expected to issue later this year.

In creating the 10% tolerance, the Department of Housing and Urban Development assumed a lender would be familiar with the provider's standard charge.

However, the lender has no control over the final costs. So it seemed reasonable to HUD to give lenders a margin of error.

(As required by the Dodd-Frank financial services reform bill of 2010, HUD transferred its regulatory jurisdiction over RESPA to the new CFPB on July 21.)

Meanwhile, Section 8 of RESPA prohibits lenders from entering into fee or pricing arrangements with settlement service providers.

So the CFPB's consideration of zero tolerance is unnerving for lenders.

“They are trying to move toward a guaranteed mortgage package without giving us Section 8 relief,” Canfield said.

Since the lender has no control over the final costs, “it is not a tenable situation,” she added.

The CFPB also is considering merging the TILA disclosure that borrowers receive three days before closing with the HUD-1 settlement sheet.

The TILA disclosure provided by the lender includes the final loan terms and costs. But some costs on the HUD-1 are not finalized by the settlement agent until the day of the closing. “CFPB is considering a proposal that would generally require delivery of the integrated settlement disclosure” three days before closing to “reduce the risk that consumers will face unexpectedly higher closing costs at the last minute,” according to the bureau.

The Ballard Spahr law partner said the CFPB is considering two alternatives for preparing the closing disclosure.

The lender could prepare the whole document. Or the lender could prepare the TILA disclosure and the settlement agent could prepare the RESPA disclosure.

Under the new regime, it will not always be entirely clear what the RESPA requirements and what the TILA requirements are, since the CFPB is blending the two forms into one.

“The bureau would have to come up with a matrix that shows what the lender has to fill out and what the agent fills out,” Andreano said.

The bureau would also have to come up with a rule governing how the two work together to get the disclosure completed on time. “I can see that as a procedural hurdle,” he added.

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