A Message from ALTA...
CFPB Releases Proposed Regulations and Mortgage Disclosure Forms - July 9, 2012
The Consumer Financial Protection Bureau (CFPB) today released a Proposed Rule to integrate mortgage disclosures required under the Truth in Lending Act (TILA) and Real Estate Settlement and Procedures Act (RESPA). The proposed forms will replace the current TIL, GFE and HUD-1.
ALTA’s RESPA Task Force is reviewing the Proposed Rule and will provide deeper analysis to ALTA membership over the coming weeks.
Last month, ALTA President Chris Abbinante provided Congress with the industry’s six principles to ensure this rule works for both consumers and industry. Below is a preliminary scorecard on how the Bureau responded to ALTA’s principles:
- Prevent disruptive and costly delays to closing for consumer: This is a partial victory for the industry. ALTA was able to successfully persuade the Bureau to include a number of exemptions to its rule requiring consumers to wait three days between receiving their final Closing Disclosure and actually closing on the transaction. These exemptions include, (1) changes that result from last-minute negotiations between the buyer and seller, such as results from the walkthrough; (2) changes that amount to less than $100 total; (3) changes that cannot be known until after closing, like recording fees; (4) technical errors; and (5) amounts paid by the lender to cure a tolerance violation.
- Provide Industry with Clear Guidance: This may be the clearest victory in the rule for ALTA members. In the proposal, the Bureau followed ALTA’s recommendation and proposed mandatory uniform disclosure forms (as required under RESPA). The Bureau also announced that it would provide industry with clear and definitive guidance through official staff commentary. This will prevent the uncertainty that surrounded the 2010 RESPA implementation that required HUD to issue over 400 frequently asked questions.
- Promote Fair Competition: This is the issue on which ALTA and its members will have the most work to do. The Bureau punted on the issue of determining who should provide the Closing Disclosure. The rule proposes two alternatives: (1) the lender fills out and delivers the disclosure; or (2) the lender and the settlement agent divide the responsibility. In addition, the Bureau keeps in place the tolerance regime, which reduces the number of settlement agents that are allowed to compete for business. ALTA will continue to push the Bureau to ensure that consumers are protected by having settlement agents continue to serve as the independent, third-party at closing
- Avoid Unnecessarily High Costs for Small Business: It is unclear whether the proposal will meet this principle. We are working with industry software vendors to determine how costly this rule will be to implement. ALTA has previously estimated that the new forms would cost settlement agents $800 per employee in upfront implementation and training costs, and a 20% increase in yearly software maintenance fees. To be successful on this principle, we will need to provide the Bureau with clear and defensible cost estimates. We are asking all ALTA members to work with their software vendors to give us a detailed estimate of how much it will cost them to implement this new rule.
- Test the Disclosures on Actual Closings Instead of Isolated Interviews with Consumers: It is unclear whether the proposal will meet this principle. While the Bureau acknowledged the benefit that extra consumer testing of the loans on actual closed transactions, they avoid endorsing more testing and instead agreed to study the feasibility of this type of testing. We will continue to push the Bureau to conduct more testing to ensure these disclosure work for consumers.
- Encourage Consumers to Make Informed Decisions: This is a partial victory for the industry. The Bureau will still require lenders to list owner’s title insurance as “optional” when it will be paid by the buyer, however it has abandoned the more prejudicial phrase of “not required.” For transactions in which the seller will pay for owners title insurance, the line will not have to include the phrase “optional.” While we are not thrilled, this is better than initial drafts. We will continue to push the Bureau to list the product as owner’s title, without any additional modifiers. We are not optimistic the Bureau will call owner’s title “advisable” or “recommended,” as the Bureau has said they see it as the industry’s job to promote its products. Other fees that will also be listed as “optional” include appliance warranties and credit life insurance.
Click here for more information about CFPB’s proposal and view all of ALTA’s advocacy efforts regarding the mortgage disclosures.
ALTA encourages members to review the Proposed Rule and provide specific examples of how this will impact consumers and the industry, along with suggested changes to improve the rule and forms. Send your concerns to ALTA at firstname.lastname@example.org.
You can help ALTA provide feedback to the CFPB by joining the Title Action Network.