Were it not for a slip-up at the Consumer Financial Protection Bureau, employees in the mortgage business might have had to forfeit their summer vacations.
New mortgage disclosure rules from the CFPB were set to take effect Aug. 1 and many lenders were far from being ready. Luckily for them, the CFPB was forced to extend the deadline by two months after the agency missed its own deadline for filing paperwork with Congress.
As of two months before the deadline, nearly 80% of banks were still awaiting technology upgrades from their vendors, according to the American Bankers Association. Even if the upgrades are made quickly, banks still need time to test and learn the new systems, says Bob Davis, an executive vice president at the ABA.
"Full confidence in the new systems may not come until months after the effective date," he says.
The change the CFPB is making combines forms mandated by the Truth-in-Lending and the Real Estate Settlement Procedures acts into a single integrated disclosure, commonly known as TRID. The intent is to help consumers more clearly understand the total cost of a home loan.
But while the change streamlines the process for borrowers, it adds more work for lenders by requiring them to electronically gather all fee data from various parties — title agents, appraisal companies and real estate agents — and prepare disclosures well in advance of a loan closing.
Currently, some of that information is given to the borrower on the same day the loan closes. But to meet the new regulations, some lenders are planning on mailing the disclosures 10 days beforehand to ensure the borrower receives them three days before closing.
"Training has now taken on a new level of importance and significance," says Brian Hale, the CEO of Stearns Lending. "Everyone is learning a new dance step."
Some mortgage experts estimate that 25% to 45% of lenders, especially smaller ones, would not be ready for the initial Aug. 1 deadline. Stearns' technology team is staying in the office until 1 a.m. these days in the effort to be ready. "This is not just a change in the form. It affects workflow, costs, people, technology, policy and procedures on how you originate a loan," Hale says.
Even though the deadline has been extended, Federal Savings Bank in Chicago expects to be ready Aug 1, thanks in large part to its partnership with mortgage software tech company Ellie Mae.
In January, Ellie Mae put the thrift in a beta test to preview changes made to its loan origination system. That gave Federal Savings early insight into how the regulations would work in practice and "how to update our system, policies and procedures," says Andrew Chojnowski, its chief operating officer for home lending.
In April, Federal Savings scheduled mandatory weekly training classes on the first disclosure form, a loan estimate given to borrowers within three days of applying for a mortgage. All mortgage-related employees had to pass a test or repeat the training until they did so.
In May, the $308 million-asset thrift finished training on the second form, known as the Closing Disclosure.
This month and next, Chojnowski was planning to roll out a "learning lab traveling show," with trainers visiting the thrift's 14 branches to familiarize other employees with the new disclosures. "We are fully prepared to be in compliance on Aug. 1," Chojnowski says.