Similar to the rationale used to design the GFE and HUD-1 forms that have been in place since 2010, the new disclosures will be developed with an eye toward increased transparency, accuracy and simplicity for borrowers. Coupled with new policies around disclosure timeframes and settlement service cost increases, the overhaul is meant to restore consumer confidence in the mortgage industry and rehabilitate the lender-borrower relationship.
Regulators’ efforts are clearly focused on improving the consumer experience, but after the new policies and forms are put in place, it will be lenders that are responsible for providing these benefits to borrowers—or risk the penalties and other enforcement action that come with noncompliance. Technology and settlement service vendors are keenly aware of this and are already laying the groundwork to quickly respond with updated tools when the final rules are established.
Industry participants involved with the renovation are confident in the progress being made, as well as regulators’ willingness to collaborate with them. But that optimism also comes with the belief that the extensive efforts underway indicate that regulators are committed to rigorously enforcing the new policies—meaning lenders who do not quickly implement the necessary technology and processes to comply do so at great risk to their businesses.
The Dodd-Frank Wall Street Reform and Consumer Protection Act transferred the enforcement and oversight of mortgage disclosure requirements from the Department of Housing and Urban Development and Federal Reserve to the new Consumer Financial Protection Bureau. In addition, Dodd-Frank requires the CFPB to combine the GFE designed by HUD under the Real Estate Settlement Procedures Act, and the “early” Truth in Lending disclosure designed by the Board of Governors of the Federal Reserve System under the Truth in Lending Act.
The new “Loan Estimate” disclosure will be a single form that eliminates overlapping information and inconsistent language in the current GFE and TILA disclosures, which the CFPB said is confusing to borrowers and burdensome to lenders. The CFPB is also creating a new “Closing Disclosure” that will replace the current HUD-1 closing document and the revised Truth in Lending disclosure designed by the Fed under TILA.