Industry Wants Better Explanation on Loan Disclosure Reform

Last week, as reported here the newrnConsumer Financial Protection Bureau (CFPB) released a second version ofrnprototype documents designed to integrate disclosure forms mandated by the RealrnEstate Settlement and Procedures Act (RESPA) and the Truth in Lending Actrn(TILA).  Consolidation of the two forms hasrnlong been sought by the lending community and is mandated by the Dodd-FrankrnWall Street Reform Act.  Comments on the revisedrnprototypes were due by July 5. </p

On that date the Mortgage BankersrnAssociation (MBA) sent a letter to Elizabeth Warren, Assistant to the Presidentrnand Special Advisor to the Treasury Secretary responsible for establishing CFPBrnasserting that the week allotted for comments on the prototypes, which includedrnthe July 4 holiday, was not sufficient to allow the industry to conduct arnsuitable review.  This is especiallyrntrue, the MBA said, “considering that comments are sought on the presentationrnof closing costs. This is a matter that the Department of Housing and UrbanrnDevelopment (HUD) considered for several years through two successivernrulemakings that engendered tens of thousands of comments. “</p

The letterrnto Warren, signed by Stephen A. O’Connor, MBA’s Senior Vice President forrnPublic Policy and Industry Relations suggested that, rather than the expeditedrncomment period the Bureau meet with MBA and other industry representatives to focusrnon closing costs and concerns as to which rules are applicable so that thernBureau could provide lenders a better understanding of the direction of thernproject and hear the practical concerns of stakeholders posed by thernprototypes. </p

MBA saidrnthat it considered the forms improved but found that the presentation ofrnclosing costs to be inconsistent with current RESPA rules and the suggestedrndisaggregation of fees to be unclear.  Forrnexample, the listing of closing costs on one prototype combines fees that arernsubject to zero and ten percent tolerances and groups fees that are subject torntolerance with fees which are not, such as transfer taxes.  The grouping of fees on the other prototypernunder “Costs” combines origination fees and fees that are connected to therninterest rate thus, mixing some fees that are subject to change during the lifernof the loan with fees that are not.</p

The twornprototypes make identical presentations of loan terms, projected payments, andrncomparisons but differ substantially in the manner in which they present loanrnestimate details.  </p

MBA said thatrnthe forms may be operationally difficult for lenders to use; expressing whatrnare largely formatting concerns relating to double-sided disclosures, shadedrnprinting, fonts, and printing within shapes. rnSome of the formatting requires complex programming and in some casedrncould make it impossible to properly disclose some specialized products.  </p

The letterrnalso made some detailed criticisms of the manner in which information isrnpresented.  For example, under loanrnterms, there are projected payments for intervals downstream for adjustablernrate mortgages which give minimum and maximum payments within the loan caps andrnmargins.  These do not agree with thernprojected payments elsewhere in the form which also include estimated tax andrninsurance figures – a deviation that MBA said might not be readily apparent tornthe borrower. </p

The letterrnconcludes that, if the Bureau intends to modify the RESPA and TILA requirements,rn”we believe that point should be made clear so commenters can provide theirrnviews on the direction the new forms might take. Given the lack of clarity onrnthis point, it is unnecessarily difficult for commenters to providerncomprehensive and informed responses.”

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