NAR Director Real Estate Services Kenneth Trepeta wrote the following in response to a proposed rule (well, series of rules) from the Consumer Financial Protection Bureau.
On July 9, 2012, the Consumer Financial Protection Bureau (CFPB) issued a 1,100-page proposal to harmonize the Real Estate Settlement Procedures Act (RESPA) and the Truth and Lending Act’s (TILA) disclosures, forms, and procedures. As with any proposal of this length, it is a mixed bag of good, bad, and ugly.
The good is the upfront disclosure. While it is a far cry from the simple one page form promised early on when CFPB began what it calls “Know Before You Owe,” it does seem to do a reasonable job aligning the RESPA Good Faith Estimate (GFE) and the TILA disclosure (TIL) in the document they refer to as the “loan estimate.”
The bad or ugly is the transformation of the two laws and the attempt to create a unified settlement statement incorporating the HUD-1 and the final TIL called the “closing disclosure.” The CFPB has decided to implement a three-day waiting period essentially for the combined document meaning it must be in the consumers hand and accurate 3 days prior to closing. While in theory this is a nice idea, in actual practice, it could be problematic for a number of reasons. The CFPB did listen to NAR and others and created a few exceptions from the mandatory three-day period:
- Buyer and seller negotiations relating to the real estate transaction
- A change of $100 or less in any given numbers
- Changes that may occur after closing
- Clerical errors/technical changes
- Bona fide financial emergency (the only example they give of what this is, is to prevent an imminent foreclosure)
[Note: What he means is, these are situations in which the entire disclosure wouldn’t have to be reissued. Other changes, however, would require a new disclosure and a new three-day waiting period. –AK]
It is at present unclear whether these will be sufficient to cover the majority or vast majority of scenarios that could lead to a required reissuance of the closing disclosure. What is most obviously problematic is the fundamental change to the closing process. It is still unclear whether this final document is to be prepared by the settlement agent, the lender, or both in some manner. Also, the volume of changes that will be required to systems, the increased paperwork, and volume of training that will be required to handle this conversion has the potential to be immense.
Other major changes and items of note:
- The finance charge is being completely revamped.
- The loan estimate which replaces the GFE will be required to be issued within three days of receiving only six pieces of information instead of six plus a catchall seventh as HUD had done. This is important because the six pieces of information are not likely enough information to provide a true estimate.
- RESPA will now apply to all TILA loans with minor exceptions, so construction loans and land loans will be covered by RESPA.
- Mortgage brokers will be allowed to issue GFEs, however the lender will still be ultimately responsible for them.
- They propose to apply a zero tolerance to affiliates on the loan estimate. Previously many of the affiliate charges came under the 10 percent tolerance in the RESPA reg.
- They seek to mandate that all documents be “machine readable” which could be very costly to implement.
- They acknowledge that six other rules yet to be finalized affect this rule. These may not be finalized before the comment period ends for this rule, meaning commenters must guess and the CFPB will have to use their own judgment without public input as to how to integrate these other rules.
- They propose to keep certain itemizations of charges noting that consumers liked them. This is consistent with NAR advocacy as well. They ask for additional comment however.
- They propose to make the forms mandatory which means they will be consistent no matter what part of the country you are in or what lender you are dealing with.
- The CFPB proposes that the buyer sign the closing disclosure to acknowledge receipt.
These 10 items do not encompass the full rule obviously, which has many more changes and not all of them are bad. What is unpalatable is the sheer number of changes proposed as well as the lack of clarity particularly with regard to the closing documents and process.
While few of these changes directly affect real estate agents, the proposal will certainly affect their clients and their transactions in many ways and likely affect the housing industry significantly for at least a period of time as it is implemented. This alone may not even be as great a concern except in the context of five or six other rulemakings that will also be imposed on the industry around the same time.
The aggregate costs of doing all this could be monumental and the impact highly significant. Therefore, working with industry partners, NAR will comment extensively. Comments are due for most of the proposal November 6, 2012.