Like the battery featured in an old television ad, the Consumer Financial Protection Bureau “just keeps going and going and going.”
Although operating fully for only about a year, the agency has already rolled out thousands of pages of new regulations and dispensed penalties totaling nearly $2 billion—and counting.
The regulations and penalties, mostly targeting mortgage lenders and credit card issuers, have made it clear that the CFPB is not walking softly, but is carrying a very large enforcement stick.
Mortgage lenders are struggling to understand and implement the consolidated real estate loan disclosure form and the qualified mortgage/ability-to-repay rules, which are fundamentally restructuring the way lenders originate loans and, to some extent, the loans they are offering.
Now the agency is turning its attention to real estate closings. Given CFPB’s history to date, title agents should be, if not afraid, then certainly aware—very aware—of what the agency is doing in this area. While agents have undoubtedly felt some of the residual heat from the new mortgage rules, they will feel the burn directly if the CFPB points a blow-torch at the closing process. The agency has requested comments and agents should definitely provide them.
Looking for “Pain Points”
The request for comments explains that the CFPB wants to identify the “pain points” in the closing process in order to make it “more streamlined, efficient and educational.” Anyone familiar with reg-speak in the mortgage finance arena (think Real Estate Settlement Procedures Act and Truth-in-Lending) knows that “streamlined,” “efficient,” and “educational” invariably mean larger, more complicated and more expensive for financial institutions and consumers alike. These code words also signal that the nation’s forests are at risk. The CFPB produced more than 2,000 pages of text to explain and implement the QM regulations and the consolidated loan disclosure forms, alone. Streamlined? Their regulations are turning what had been two pages of consumer disclosures, into five.
Of course, it’s not just the length of any closing rules the agency might adopt, but what these rules might require that should concern us. The questions posed in the request for comments hint at the issues the agency is likely to address. Regulators want to know, among other things:
- What parts of the closing process consumers find “confusing” or “overwhelming.”
- How long the closing process takes.
- Common errors consumers and industry practitioners have identified.
- How consumers seek advice during the closing.
- What documents consumers find “particularly confusing.”
- Whether consumers feel “empowered” at closings.
“Errors.” “Confusing.” “Empowered.” You don’t need a crystal ball to predict where the agency might be heading: More disclosures for consumers, more compliance concerns (and more liability) for practitioners, and possibly sweeping changes in the closing process, requiring huge investments of time and money by settlement services providers.
An Oncoming Train
Although this looks and feels an awful lot like an oncoming train, it is not yet traveling at full speed. We have an opportunity to change its direction and possibly to affect its final destination.
There is no question that the CFPB has immense powers, the authority to levy fines of $25,000 per day not the least among them. There also is no question that the agency’s priority is protecting consumers. That’s why it was created.
But agency officials have demonstrated a willingness to consider industry concerns. They backed away from an initial QM proposal that would have included title insurance premiums in the APR calculation and they modified (although not as much as critics wanted) a policy interpretation that counts fees paid to lender affiliates—including title insurance premiums—toward the 3% qualified mortgage cap. (Under the revised interpretation, only the portion of the fee actually retained by an affiliate must be counted.) In these instances and others, agency officials have responded in some measure to evidence that their actions might have unintended adverse consequences.
CFPB’s desire to improve the mortgage lending process and prevent abuses (real or perceived) that threaten consumers is unquestioned. Its theoretical understanding of the mortgage lending process is also clear. But the agency’s practical understanding of how the industry operates and what is required for it to operate efficiently for consumers and effectively for lenders and service providers is imperfect, at best.
A Dangerous Gap
That comprehension gap can be dangerous for the health of title agents and other settlement services providers, who will have to cope with any unintended consequences of rules the CFPB imposes on the closing process. That’s why it is essential for agents to reply to the agency’s request for comments.
Your input can help regulators understand how the rules they create at their desks will play out in the real world. You should:
- Explain how the closing process works—what components and conditions are necessary for the process to function smoothly and cost-effectively.
- Identify any problems you perceive, but also emphasize the need for clarity and simplicity in any new regulations the agency adopts and remind regulators that increasing the information provided to consumers does not always increase their understanding (think RESPA again). Sometimes it has the opposite effect.
- Above all, urge regulators to be aware of the financial burden on the industry, and on small practitioners in particular, when software changes and technology upgrades are needed to implement new procedures and comply with new rules.
Comments are due by Feb. 7. They should be identified by Docket No. CFPB-2013-0036, and can be submitted either electronically (http://www.regulations.gov.) or by mail/hand delivery or courier to: Monica Jackson, Office of the Executive Secretary, Consumer Financial Protection Bureau, 1700 G Street NW., Washington, DC 20552.
There is no guarantee that your comments will influence what the agency does or doesn’t do in the closing area, but you will have absolutely no hope of influencing the outcome if you don’t comment.
Joe Drum is executive vice president in charge of agency operations for WFG National Title Insurance Co.