Title agents are hoping the new Consumer Financial Protection Bureau will get tough on lenders that low-ball the initial costs they disclose to homebuyers and then surprise borrowers at the closing table with higher charges.
Only a small minority of lenders employ these “bait and switch tactics,” according to Michelle Korsmo, chief executive at the American Land Title Association – but she noted that enforcement is needed to ensure consumers receive accurate good faith estimate disclosures.
The new bureau has the legal authority to collect the initial GFE disclosure form, and the final charges on the settlement sheet. The CFPB can compare those numbers and spot the outliers. “That’s where enforcement will be most effective,” Korsmo said in an interview with National Mortgage News.
Under the Dodd-Frank Act, the CPFB inherited the enforcement of the Real Estate Settlement Procedures Act from the Department of Housing and Urban Development. The bureau is also revamping the GFE disclosure and the HUD-1 settlement sheet. Soon the forms will be known as the “initial loan estimate” and the “settlement disclosure.”
As part of its RESPA reform effort in 2008, HUD created a 10% tolerance policy on third-party charges. If the final charges exceed the initial disclosure by 10%, the lender was expected to pay the difference. But in practice, some lenders turned to the title agent.
A recent ALTA survey found that 55% of agents experience pressure on a periodic basis to reduce their fees as a result of tolerance violations. “We encourage our agents not to succumb to pressure” and advise them to report it to HUD and CFPB, the ALTA CEO said.
In March 2011, a HUD official told ALTA members at the trade group’s annual Washington meeting that the department was prepared to take an enforcement action against a “large lender” that had forced title agents to cover certain settlement costs. Title agents who paid the “tolerance cures” will be reimbursed by the lender, the HUD official said.
One year later, the title agents have not been reimbursed and there is no record of HUD taking such enforcement against a large lender.
ALTA is not seeking changes to the tolerance policy, although Korsmo noted it would be helpful to have clearer guidance on some aspects of the rule.
“The 2008 RESPA guidance is a little confusing for lenders about when they are required to reissue the GFE estimate due to a change in circumstance,” she said.
ALTA’s survey found that lenders re-issue the GFE two or more times in 75% of all mortgage transactions.
It seems ALTA main beef is the lack of enforcement. “We encourage CFPB to move forward with enforcement actions,” Korsmo said.
