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Consumer Financial Protection Bureau

ALTA RESPA Task Force Comments on First Round of Draft Final Disclosure

November 22, 2011

ALTA’s RESPA Task Force submitted comments to the Consumer Financial Protection Bureau’s first draft of a final disclosure form.

The CFPB is combining the Truth in Lending disclosure and HUD-1 Settlement Statement to create a new HUD-1. In its first effort to combine the forms, the CFPB created a six-page form called Ironwood Bank and a five-page disclosure called Hornbeam Bank.

The Task Force’s comments to the CFPB focused on four key areas, such as proposing to split the form into a section for lender information and another for settlement agents to complete; changes to section formatting and numbering that will require costly software updates; continued use of roll-up lines; and the future use of the tolerance concept.

The Task Force is concerned which parties will be responsible for filling out the final disclosure. RESPA requires settlement agents to complete the current HUD-1. The draft disclosure contains a significant volume of loan information that is typically only knows to the loan originator. Because of this, the Task Force suggests that Bureau consider segregating the form into two parts so that the settlement agent and the loan originator can each be responsible for their respective portions of the forms.

In regard to section formatting, the Task Force recommends minimizing the reordering and renumbering of line items from the current HUD-1 to reduce programming costs. Page 3 of both first draft disclosure forms illustrate a change in the order and numberings of sections from Page 2 of the current and prior HUD-1 forms. These changes will require significant programming efforts for all systems (lender and settlement agent system).

To improve transparency of the forms, the Task Force suggests discarding the use of roll ups in favor of increased itemization and expandability. This will not only provide transparency to consumers and lenders, but save space on the form. An added benefit for settlement agents will be that the settlement disclosure form will return to being a reflection of the settlement agent’s disbursement ledger.

Finally, the Task Force told the CFPB that tolerance has not resulted in improving the accuracy of RESPA disclosures as serial Good Faith Estimates are sent to consumers to avoid tolerance violations. If the CFPB plans to continue using tolerances, the Task Force recommended the Bureau clarifies how tolerance violations should be cured.

In addition to these changes, the Bureau should reconsider zero and 10 percent tolerance on transfer tax and recording fees as these are required by statute and recording fees are very difficult to estimate at application. Usually, lenders and settlement agents are not aware of all required documents and number of pages when quoting these fees.

The CFPB tested the first draft of its final disclosure in Des Moines, Iowa. The Bureau expects to conduct four more rounds of testing and revisions through February 2012. Starting in the second or third round of this phase, the CFPB said it will test both the initial and final disclosures together. Settlement agents will be included in the testing process. The CFPB also plans to issue draft forms for public comment as part of notice and comment rulemaking procedures in July 2012.

ALTA’s Task Force will meet with CFPB staff in December to share concerns, and also will submit a detailed letter explaining its questions and issues with the draft form.

It’s important the industry provide feedback to the CFPB during the process.

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