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Mortgages

Request for Delay of Mortgage-Disclosure Rule

Credit...The New York Times

New rules intended to make mortgage terms more transparent and easier for consumers to understand are scheduled to take effect on Aug. 1. But although the changes have been in the works for almost two years, the lending industry says it is not prepared for the shift.

So with two months to go, banks are asking for a delay in enforcement.

Outwardly, the new requirements seem fairly simple. Instead of the four different mortgage disclosure forms now required under the Truth in Lending and Real Estate Settlement Procedures Acts, borrowers will receive an initial Loan Estimate at the time of application, and a Closing Disclosure shortly before they sign off.

The new forms are just one part of a nearly 1,900-page rule created by the Consumer Financial Protection Bureau to strengthen protections after the mortgage crisis. Known in the industry as TILA-RESPA, for its integration of the two existing acts, the rule was finalized in November 2013, with an implementation date of August 2015.

The American Bankers Association, however, says its members aren’t ready. And it blames the vendors who supply the software and system upgrades needed for regulatory compliance.

In a survey released earlier this month, 79 percent of responding banks said their vendors either had not verified a delivery date for the software updates or had said the systems wouldn’t arrive before June.

“When the systems are received late, there’s not time for training, installation, debugging,” said Bob Davis, the association’s executive vice president for mortgage markets. “With that occurring, there will be a lot of uncertainty about performance of the systems and staff.”

And uncertainty will hurt consumers, he argues. Banks that are wary about their ability to comply will temporarily pull back in mortgage lending, causing “a speed bump in credit availability,” Mr. Davis said.

The association supports legislation recently filed in the House that would prohibit enforcement of TILA-RESPA until Jan. 1, 2016. The bill would also prohibit anyone from filing a lawsuit against a lender for violating the requirements, provided the lender had made a “good faith effort” to comply.

More than 20 consumer groups have signed a letter opposing the legislation, however, saying that it was borrowers who need protecting, not lenders.

“Doesn’t the homeowner have the right to get a reasonably accurate disclosure in advance of closing?” said Alys Cohen, a staff attorney for the National Consumer Law Center.

“Once you show up at closing, it’s very hard to walk away,” she said. “That’s how we ended up with all those bait-and-switch loans” before the financial crisis. And, she added, during such a grace period for lenders, homeowners would have no recourse.

Richard Cordray, the director of the Consumer Financial Protection Bureau, has so far held firm on the Aug. 1 implementation date. At a May 12 speech before the National Association of Realtors, he acknowledged that the coming changes represent “a major undertaking.” But he noted that the challenge was similar and the time frame shorter when the bureau put an earlier round of reforms in place, the Ability-to-Repay and Qualified Mortgage rules. And in that instance, he said, “industry worked hard to make a successful transition on time.”

Ms. Cohen said the law center would not be opposed to the bureau’s extending the effective date. But once the rule is in place, it should be enforced, as with any regulation, she added. “We don’t want to live in a society where we can just say, please don’t hold us accountable if we don’t do it right,” Ms. Cohen said.

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A version of this article appears in print on  , Section RE, Page 10 of the New York edition with the headline: Request for Disclosure Rule Delay. Order Reprints | Today’s Paper | Subscribe

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