Why New CFPB Closing Form Is Driving Lenders 'Crazy'

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WASHINGTON — New disclosure rules from the Consumer Financial Protection Bureau don't go into effect until this summer, but lenders are already worried about compliance and fearing it may make the closing process far more difficult.

The final settlement disclosure is generally a routine exercise for lenders and title agents, but the new rule puts more responsibility on lenders for the precise timing and accuracy of the statement, which must be given to the borrower three days before closing. The new format of the closing disclosure is also very different than the current form, and automated systems have to be updated in the new format.

The new format of the closing disclosure is also very different than the current form, and automated systems have to be updated in the new format.

"It's driving the vendors crazy," said Richard Andreano, a partner in the Washington office of Ballard Spahr.

At issue is a final rule issued by the CFPB in November 2013 that merges the Real Estate Settlement Procedures Act and Truth in Lending Act disclosures requirement into a single document.

Lenders said the adjustment to the new form is difficult. For example, the new closing document lists fees under certain categories but the industry doesn't have standard definitions for many fees and charges.

"The trouble is that you can have a finance charge that has different names," Andreano said. "In some cases, the same names may be used to refer to different types of fees, while in other cases different names refer to the same fee. The technology guys are wondering how to deal with that."

Another problem comes down to the format of the new document. The current HUD-1 settlement sheet has dedicated lines for certain fees and other data, with each line numbered. But the CFPB's new closure document does not have numbered lines — and it's causing big problems.

"The problem is how do you set up the systems and how to ensure compliance if you don't have any way to keep track of the line numbers," said Rod Alba, senior regulatory counsel of the American Bankers Association.

A spokesman for the CFPB said the agency removed the line numbers from the document after extensive testing with consumers showed it confused many borrowers.

“The testing found consumers were better able to understand the information on the new forms without the line numbers,” the spokesman said.

A further complication is the difficulty of getting lenders and title companies to have compatible systems. Under the current system, title lenders provide borrowers with the HUD-1 settlement document while the lenders provide Truth-in-Lending Act financial disclosures. The new CFPB document would combine both those forms, requiring lenders and title companies to finalize the merged form ahead of time.

"It is a substantial change from what we have now," said Cynthia Blair, a member of the board of governors for the American Land Title Association. "The software providers are quite concerned about getting everything changed over."

With implementation to begin Aug. 1, software providers are still testing their products, Blair said.

A spokesman for the CFPB said the agency has “engaged extensively with both the title industry and creditors (and their software vendors) regarding implementation of the integrated disclosures.

“The bureau continues to support adoption of the new rule through our regulatory implementation efforts, including webinars, conferences and a host of training tools.”

He added that the “new forms were designed to improve consumers’ understanding of their loan terms and costs. The forms were extensively tested with that purpose in mind.”

ALTA and the Mortgage Bankers Association are co-sponsoring seminars on the new disclosure regime. They are due to hold the second one in Miami on Feb. 17, followed by others in Dallas, Chicago and Washington.

The goal is to achieve a seamless exchange of information between mortgage companies and title agencies.

"It is a huge undertaking," said Pete Mills, a senior vice president of the MBA. "We are in the phase where the programmers are doing the systems work on the back end. Now the lenders have to get their systems to work with the title and closing industry systems."

Due to liability and other concerns, some larger lenders are taking over most of the process. Bank of America and Wells Fargo have announced that they will complete the closing disclosure form to ensure compliance.

"After assessing all the requirements and options, it has been determined that Wells Fargo needs to control the generation and delivery of the borrower's closing document to consistently meet internal and regulator expectations," Wells Fargo said in a Sept. 24 notice to settlement agents.

Borrowers will be able to select a title agent to handle the closing, provided they are appropriately licensed and meet other reasonable criteria, according to Tom Goyda, a spokesman for Wells Fargo.

"But we will be generating the actual closing document that will be used," he said.

Bank of America is taking a similar approach. In December, the bank said it would generate and take responsibility for the closing disclosure starting Aug. 1.

"For purchase transactions, settlement agents will continue to generate the seller's closing disclosure," the bank said.

Bank of America customers will also continue to be able to choose a title agent, according to Bob Kelly, a senior business control executive at B of A, "as long as the agent follows the new processes the bank and many other lenders are implementing to conform to the RESPA/TILA guidelines."

The Charlotte, N.C.-based bank also announced that it will use "Closing Insight," developed by RealEC Technologies "to support the implementation of the CFPB's Integrated Mortgage Disclosure rule."

B of A instructed its settlement agents that all documents, data and information will be exchanged via Closing Insight.

"This will discontinue the use of email, fax and other document delivery methods to ensure that nonpublic information is always protected," the bank said.

But smaller institutions — and some title companies — may not seek to follow suit.

Jeremy Yohe, a spokesman for ALTA, said that some title companies may feel threatened by the bank announcements, while others will welcome the shift in responsibility.

"In addition, local community banks and credit unions do not have the same capabilities as a national lender and may rely on settlement agents for the production and delivery of the closing disclosure," he said.

MBA's Mills said he expects a lot of lenders will continue to rely on title companies to prepare the closing disclosure. Doing it in-house is "not a viable solution for a lot of small lenders," Mills said.

Meanwhile, lenders and title/escrow companies are working to make sure their systems can communicate.

"Yes, it is going to get done" by Aug. 1, Mills said. "Are people going to burn a lot of stomach acid getting there? Absolutely."

While CFPB is expected to stick with its Aug. 1 implementation deadline, industry groups like MBA and ALTA are hoping the agency will be flexible and provide a 60-day non-enforcement period.

"The first 60 days will be bumpy," said Diane Evans, president of ALTA and the vice president at Land Title Guarantee Co. in Denver. "We hope CFPB will grant a phase in period before they start enforcing fines and penalties."

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