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CFPB admits loan disclosure rules rollout hasn’t been smooth

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2015-10-29
New federal loan disclosure rules that were designed to help borrowers understand what they were signing at their home’s closing have had a bumpy rollout because of fighting in Congress and incompatible mortgage software, the Consumer Financial Protection Bureau’s director Richard Cordray admitted to mortgage lenders.
“It has become apparent that the implementation process was not as smooth as we would have hoped,” he said about the rollout of the “Know Before You Owe” rule to an audience at the Mortgage Bankers Association’s annual convention in San Diego on Monday. The rule gives consumers three days to pore over the loan documents, perhaps with an attorney or other trusted adviser, before closing on the loan.

The rule, which was set to go into effect in August but was delayed by two months because the industry wasn’t ready, is already being targeted for potentially slowing down home closings and requiring borrowers to pay more for the bank to hold an agreed-upon interest rate longer. This is called a loan lock, and for a fee it “locks in” an interest rate during the closing of a home sale. Before the rule went into effect, the typical loan lock was 30 days, which the consumer didn’t pay for. But some lenders and brokers fear that now with the new rules increasing closing periods, a loan lock of 45 days or 60 days will be needed to keep the interest rate stable.

“Either the lender is going to have to pay for the extended rate lock, or the borrower, but somebody is going to have to pay it,” said Mario De Tomasi, chief executive officer of Commerce Home Mortgage in San Ramon, Calif., in an interview after Cordray’s remarks.

Such longer loan lock periods could lead to consumers incurring hundreds or even thousands of dollars in additional loan fees to hold an interest rate. Cordray, however, denied that closings have been longer as a result or that consumers are likely to incur higher costs, calling those who say so “prophets of doom” who were wrong about earlier CFPB efforts to protect consumers having the opposite effect by hurting lending.

“These claims reflect a failure or perhaps a refusal to understand what the rule actually says,” he told bankers. Still, the industry says that evidence of widespread closing delays won’t surface till November at the earliest, when the first loans that were subject to the “Know Before You Owe” rules (those made on or before Oct. 3) will start closing 30 days after.

The new disclosure rule combines the previous Truth In Lending Act requirements (TILA) with those of the Real Estate Settlement Practices Act (RESPA) into one Integrated Disclosure, or TRID. The idea was to give consumers at least three days to look over the typical mountains of closing documents before they got the keys to their new home.

During the housing boom of the last decade, many lenders were accused of slipping in higher interest rates at the last minute into the closing documents, as well as other fees, such as a prepayment penalty, and even switching loan products (such as fixed loans to variable loans) which brought them higher commissions. Now, under the TRID rules, any last-minute changes in interest rates or loan products will require mortgage lenders to give consumers more time to understand the changes, and even walk away from the deal under some circumstances without penalty.

But the CFPB’s Cordray didn’t directly lay the blame on the ragged TRID rollout on the lenders, instead pointing the finger at the industry’s various software and vendors who supply banks and lenders with correct data and presentations to borrowers before they close on their loans.

“Some vendors performed poorly in getting their work done in a timely manner, and they unfairly put many of you (lenders) on the spot with changes at the last minute or even past the due date,” Cordray said. The CFPB will likely focus its regulatory effort in the future on the “unsatisfactory performance of these vendors and how they are affecting the financial marketplace,” he told mortgage bankers in San Diego.


Jonathan Corr, president and CEO of Ellie Mae ELLI,   which provides about a third of the TRID compliant lending software for the mortgage industry, said that while some small lenders and software vendors weren’t prepared for the new disclosure rules, lenders simply have to comply with two sets of standards and procedures, one for loans made before Oct. 2, 2015, and those made after the TRID rules went into effect Oct. 3. “This is the biggest change to the mortgage industry in 40 years,” he said. “With these new rules, we just have to expect the process to take longer, but it will sort itself out over time, perhaps by the middle of (2016).”

The Mortgage Bankers Association has also pressured Congress to enact legislation to extend a “safe harbor” for lenders from CFPB enforcement sanctions on errors made in the TRID rules until February 2016, but the White House has promised to veto such legislation saying the mortgage industry has had long enough to get the disclosure rule right.


Source:http://www.marketwatch.com/story/cfpb-admits-loan-disclosure-rules-rollout-hasnt-been-smooth-2015-10-20