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Consumer Financial Protection Bureau

Top Ops Hurdles Created by CFPB Disclosures

March 18, 2014

Bob Dylan famously sang “the times they are a-changin’.” For the title and settlement industry no change will be more drastic than the Consumer Financial Protection Bureau’s (CFPB) new Integrated Mortgage Disclosures rule. Coming just five years after the last RESPA reform effort, the Bureau’s new rule will require significant and costly systems and process changes to ensure compliance in the new world of closings.

During the opening general session of ALTA’s 2014 Business Strategies Conference on March 13 in Nashville, Tenn., an expert panel discussed the biggest workflow and process challenges title professionals will face as they transition from today’s HUD-1 to the new Closing Disclosure Form. The five-page Closing Disclosure will replace the HUD-1 and final TIL disclosure, while the three-page Loan Estimate will integrate the GFE and early TIL. The forms become effective Aug. 1, 2015.

Moderating the panel was Phil Schulman of K&L Gates. Panelists included Tim Armbruster of ClosingCorp Inc., Ruth Dillingham of First American Title Insurance Co., Cynthia Blair of Rogers Townsend & Thomas PC and a member of ALTA’s Board of Governors, and Richard Horn, a partner at Denton’s law firm and formerly of the CFPB. Horn opened the conversation explaining that the CFPB had two objectives in developing the new disclosures.

The first goal was to aid consumer understanding, while the second was to facilitate compliance with the Truth-in-Lending and Real Estate Settlement Procedures acts. Horn said the Bureau received nearly 27,000 comments before issuing the final rule for the integrated disclosures in November. Before digging into operational challenges, Schulman acknowledged ALTA’s efforts in shaping the final rule and minimizing negative impacts on industry.

One major change from the current forms, according to Armbruster, is a move back to itemization instead of lump-sum charges. As an example, a title search fee is now shown in block four of the current GFE. On the Closing Disclosure, this fee will be labeled as “Title Insurance – Title Search” in Section C of page two.

“There’s much more detail on fees as the CFPB’s philosophy is that consumers should be able to see the fees they are being charged,” Armbruster said. “Because of this, settlement agents can expect more questions at the closing table.” The addition of more fees to the disclosure may drive lenders to want more control and standardization of fees. “They will want to see the same fee breakdown,” Armbruster added.

Schulman said that because different services are required for each loan, no two Loan Estimates or Closing Disclosures will look the same. “The industry is creative with fees,” Armbruster said. “Title search could have several different names across the country. There will need to be some standardization.” In addition, services need to be put in alphabetical order.

Similar to existing law, the final rule restricts the circumstances in which consumers can be required to pay more for settlement services than the amount stated on their Loan Estimate form. The CFPB has moved away from the term “tolerance” and now used “variance.” Dillingham said the CFPB essentially has turned the Loan Estimate into an “exact loan estimate because it has expanded the category in which fees can’t change. Unless an exception applies, charges for the following services cannot increase:

  • the creditor’s or mortgage broker’s charges for its own services
  • charges for services provided by an affiliate of the creditor or mortgage broker
  • charges for services for which the creditor or mortgage broker does not permit the consumer to shop.
  • Charges for other services can increase, but generally not by more than 10 percent, unless an exception applies.

The exceptions include, for example, situations when:

  • the consumer asks for a change
  • the consumer chooses a service provider that was not identified by the creditor
  • information provided at application was inaccurate or becomes inaccurate
  • the Loan Estimate expires

“I’m concerned about this because we’ve taken services recommend by the lender that were in the 10 percent bucket that now are in the zero-variation bucket,” Schulman said. “Now, the lender is responsible for the title charge that is provided to them. If the estimate for title insurance that is provided to the lender is off, the lender will need to provide a refund and they probably won’t keep you on its preferred vendor list.”

The CFPB maintained the GFE concept of a written list of settlement service providers in the final regulations. If a consumer is permitted to shop for settlement services, the lender must provide a settlement service provider list on a separate sheet of paper, which contains at least one provider for each applicable settlement service, the provider’s contact information, and a statement notifying the consumer that he or she may choose a different provider. The Bureau specifically acknowledges that the listed providers may be a lender’s affiliates, but any providers included on the list must be able to provide services where the consumer or the property is located. The panel then addressed the timing of when the disclosures must be provided to the consumer.

According to the regulations, the creditor must give the Closing Disclosure to the consumer at least three business days before the loan closes. As an example, if settlement is scheduled for Thursday then the consumer must receive the disclosure by Monday.

“Instead of two hours prior to closing; it will be two hours before the disclosure is due that we will receive them,” Blair said. The three-business-day waiting period begins on the day the consumer receives the form and is not automatically measured from the day the lender or the settlement agent sends the form to the consumer. For purposes of this requirement, “business day” also means all calendar days except Sunday and certain federal holidays. For instance, if a lender or settlement agent mails the Closing Disclosure to the consumer via first class mail, the consumer is deemed to receive the disclosure three business days after mailing.

To comply with the timing requirement for the Closing Disclosure, the creditor or settlement agent must count three business days from the date mailed plus three business days before consummation. Like the Loan Estimate, however, if a consumer experiences a bona fide financial emergency, the final regulations permit the consumer to waive the three-business-day period through a dated written statement that describes the emergency, specifically modifies or waives the waiting period, and is signed by all consumers that will be primarily liable on the loan. Generally, if changes occur between the time the Closing Disclosure form is given and the closing, the consumer must be provided a new form. When that happens, the consumer must be given three additional business days to review that form before closing.

The CFPB listened to ALTA concerns and limited the instances that would require a new Closing Disclosure to be issued. Changes that require creditors to provide a new Closing Disclosure and an additional three-business-day waiting period after receipt include:

  • changes to the APR above 1/8 of a percent for most loans (and 1/4 of a percent for loans with irregular payments or periods)
  • changes the loan product
  • addition of a prepayment penalty to the loan

The Closing Disclosure may be emailed but e-Sign rules for the jurisdiction must be followed. Each company will need to develop its own process to determine proper evidence of receipt. Some companies may require some type of response back and then keep the response in a file, Dillingham said.

“One concern is if you send the disclosure on Monday but don’t get a returned message from the borrower until Tuesday,” Blair said. “You could be pushing the closing back a day.”

The biggest challenge rests in which entity will prepare the Closing Disclosure as the final rule says the creditor is ultimately responsible. In the final rule, the CFPB said the creditor is responsible for delivering the Closing Disclosure form to the consumer, but creditors may use settlement agents to provide the Closing Disclosure, provided that the settlement agents comply with the final rule’s requirements for the Closing Disclosure. It’s important to note that the final rule acknowledges settlement agents’ longstanding involvement in the closing of real estate and mortgage loan transactions, as well as their preparation and delivery of the HUD-1. Dillingham said that we may likely see lenders providing the first iteration of the Closing Disclosure and providing data they typically provided for the TIL, while the settlement agent completes the form and provides to the consumer.

“There will be cautious lenders that follow this path and they will want the first bite of the apple,” Dillingham said. “They will then send the disclosure to the settlement agent for number tweaking. This will require settlement agents’ software to mimic was the lender created.”

Schulman said he expects lenders to take on more responsibility of filling out and providing the Closing Disclosure for refinances, while the settlement service industry will retain its role in providing the form for purchase transactions.

Title agents will continue to provide the disclosure to the sellers, according to Horn. “Ultimately, it will be a marriage between the two,” Schulman said. “If a lender is going to be liable, they will say settlement agents are liable for the information they provide.”


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