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Know before You Owe

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By Ken Trepeta

owe_moneyThe Consumer Financial Protection Bureau (CFPB) has begun a new phase of work to find ways to improve the closing of real estate and mortgage transactions. Initially, many thought the second round of “Know Before You Owe” was going to be another rulemaking related to RESPA/TILA modernization. Earlier this year, CFPB’s solicitation for information relating to problems with the closing process raised concerns that it was going to be changing the RESPA/TILA rule yet again, even before the new rule’s implementation in August 2015.

However, on April 23, 2014, CFPB clarified its real purpose. The Bureau’s current work will be focused on testing the efficacy of electronic closings via a pilot project. The pilot project will likely begin in October 2014 and carry on for several months. For the project, approximately half a dozen settlement service providers will test electronic versus paper closing methods. The idea is to determine whether so called e-closing can be less expensive, more effective or both.

NAR has been a leader in advocating for streamlining the closing process by providing significant input into HUD’s RESPA rules and the CFPB’s RESPA/TILA harmonization. NAR also worked to remove the impediment to the use of eSignatures and other elements of electronic document delivery. NAR expects to be involved in CFPB’s current work moving forward.

While the CFPB recognizes the promise of e-closings and e-document delivery, they also do not want to miss possible shortcomings. First, there is often confusion with regard to what e-closings are. CFPB does not consider e-closings to be closings done exclusively online. Rather, CFPB is more focused on the elimination of paper. It is likely that parties would still meet in most cases; they just would not be signing stacks of paper. However, it is unclear whether eliminating the paper in and of itself yields a real benefit.

Another possible shortcoming is that the elimination of paper might make parties even less likely to read important disclosures. While that might make closings move quicker, it could be at the expense of consumers knowing even less about what they are signing. On the other hand, if measures are taken to ensure consumers do read the documents closely, does that add more cost? Or does it raise the question of whether some disclosures are more important than others and, therefore, should be treated differently? Should some disclosures be completely eliminated? Or as NAR pointed out with regard to HUD’s plans with RESPA disclosures over the last decade—is closing too late to receive and comprehend this information?

The first round of the pilot is expected to conclude in early 2015. Other rounds are envisioned after the initial round is completed. NAR and others have cautioned CFPB not to use this project to make major changes to RESPA/TILA. CFPB has acknowledged this concern and plans no rulemaking related to the project. CFPB intends this project to be an iterative process and has invited many stakeholders to participate. The results should prove interesting. If the outcome yields eliminating pointless disclosures and documents, along with better consumer understanding of more critical disclosures, this effort will be time well spent for all those involved.

Ken Trepeta is the director of Real Estate Services for the National Association of REALTORS®.

This column is brought to you by the NAR Real Estate Services group.

For more information, visit www.realtor.org

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