The real estate industry continues to face many challenges in both the legislative and regulatory arena, including upcoming regulations for the Qualified Residential Mortgage (QRM) and Qualified Mortgage (QM), as well as legislative efforts that may include altering the mortgage interest deduction, the government sponsored enterprises (GSEs) and other important housing programs. As the battles continue on these and other important issues, the impending changes to RESPA and TILA lurk largely under the radar screen.
For most of 2011, the Consumer Financial Protection Bureau (CFPB) has been diligently working on harmonizing the Good Faith Estimate (GFE) and the Truth in Lending (TIL) disclosure. The industry has long sought some simplification in this area. CFPB has previewed various forms that appear to achieve this harmonization. They have also frequently solicited public and industry comments through their website http://www.consumerfinance.gov/knowbeforeyouowe. As the year progressed into the fall, CFPB moved on to redesigning the HUD-1 settlement statement, producing two sample forms of five and six pages respectively. The hope is to issue a proposed rule in the summer of 2012 as Dodd-Frank requires.
What is becoming very clear is that this rule-making is a lot more than simply changing a couple of forms. It is quite possible that the underlying rule proposal will rival the QM and QRM proposals at least in size if not in scope. After examining the HUD-1 forms, it is clear the agency has numerous decisions to make and a lot of latitude in making them:
1) What to do about the tolerances from the 2009 HUD RESPA reform? The HUD-1 form contains nearly an entire page devoted to comparing GFE costs to final costs in order to determine if tolerances are exceeded. The implication is that the CFPB is strongly considering maintaining the HUD regulation without changes. The tolerance regime has done little or nothing to help consumers and has just added to the confusion and issues at closing. The tolerance regime should be eliminated or, at the very least, scaled back with lenders only required to guarantee the charges they are responsible for.
2) What to do about the timing of disclosures? Under current rules, the HUD-1 must be available upon request the day before closing. However, a revised Truth in Lending Statement must be available three days before closing. If the documents are combined, can this be achieved accurately, especially when additional details and information often arrive at nearly the last minute? The three-day rule is already a bit of a nuisance since borrowers cannot waive it. In a purchase transaction, this requirement can quickly turn into a consumer nuisance or worse, as moving trucks and families find themselves in limbo and, in some cases, temporarily homeless. CFPB will have to think carefully about these notice requirements and should strongly consider a waiver option.
3) What to do about various requirements in Dodd-Frank, including the “Lender Cost of Funds” (LCF) and “Total Interest Percentage” (TIP)? The LCF appears to be an attempt to calculate some kind of “wholesale cost” of the money the lender is lending so consumers can compare what they are paying and what the lender is paying. However, it is probably literally impossible to calculate in an accurate way given the way mortgages are financed with or without the secondary market. Other than to make the point that paying interest is expensive over time, it is unclear what benefit this will yield and will likely just be another source of confusion.
Everyone in the industry would be wise to sign up for updates at the link mentioned earlier and force themselves to follow this. CFPB has been very open in this process and it is important that we all weigh in with our concerns.
This column is brought to you by the NAR Real Estate Services group.
Ken Trepeta is the director of Real Estate Services for the National Association of REALTORS®.