It will take a decade or more to work out all the kinks in the forthcoming merger of the Truth in Lending and Real Estate Settlement Procedures Act into a single, integrated disclosure, a top banking industry official said.
Rod Alba, vice president of mortgage finance at the American Bankers Association and the group's senior regulatory counsel, said it will be a good 10 to 15 years for lenders to become comfortable with the new disclosure and for consumers to reach the point where they eventually stop challenging the changes in court.
"We're going to remove the system we have now and replace it with an entirely new one," Alba explained at the ABA's annual Real Estate Lending Conference in Baltimore.
"If they truly put the two laws together, it's going to have to be a ground-up restructuring," he said. "It can't be simply putting new makeup on an old face."
Under the Dodd-Frank Reform and Consumer Protection Act, the new Consumer Finance Protection Bureau is directed to combine the disclosures required under the two consumer protection laws, and must put forth its proposal for public comment by Jan. 12 next year.
If there is good news on the pending merger, Alba told the meeting, it's that the Treasury Department is beginning the process of collecting information on which to base the proposed rule. Treasury will transfer that task to the CFPB when it officially becomes an agency on July 1.
The ABA staffer also noted that Elizabeth Warren, the new agency's current honcho, indicated the CFPB will not stray outside the boundaries of the two old laws in writing the new rules.
Both of those items fit into ABA's advocacy position, which, among other things, calls on regulators to recognize that Dodd-Frank is "a major industry restructuring," and to stop any reform efforts that are not based on Dodd-Frank's mandates.
"They need to get the new disclosure in place," Alba said. "That is going to be the foundation to which all other Dodd-Frank requirements can be added. But they must build the house first before they can add the amenities."
Alba also told the meeting that while he doesn't expect "politics of the past" in which mortgage bankers, title companies, the government-sponsored enterprises and even real estate brokers attempted to carve out their own RESPA niches to come into play this time around, he does think that the rule-making process will "look more like a legislative session."
In fact, he added, regulators "may have to go back to Congress" for further guidance.
He also said that although the start-up costs for lenders to comply with the forthcoming rules "will be tremendously high," they will eventually lead to lower costs, at least for consumers.
But Robert Cook, a partner in the Baltimore law firm Hudson Cook, said the real savings will come if the CFPB specifies the amounts lenders can be sued for if they fail to follow the new disclosures.
