The Trusted Adviser
November 2013 | Volume 6 · Number 9

CFPB's New Mortgage Disclosures Represent a Partial Victory for the Title Industry

David S. Huffman photo

Last week, we reported that the Consumer Financial Protection Bureau (CFPB) released new mortgage disclosure forms and the implementing rule. The new rule combined overlapping federal disclosure forms required by the Truth in Lending Act (TILA) and Real Estate Settlement Procedures Act (RESPA).The CFPB's stated purpose of the new simplified mortgage disclosure forms is to make it easier for homebuyers to understand the terms of a mortgage, compare loan offers, and avoid "costly surprises" at closing. Under the new rule, a new Closing Disclosure will replace the HUD-1 and final Truth in Lending (TIL) disclosure, and a Loan Estimate will replace the Good Faith Estimate (GFE) and early TIL. The new forms must be implemented for loans with application dates on or after August 1, 2015. ATG and its related service providers are already working to make the changes necessary to assist you in complying.

While the new rule represents some dramatic changes in the mortgage-shopping process and settlement services industry, we view most of the changes in the new rule as positive. Working closely with the American Land Title Association (ALTA), ATG and many of its members actively participated in the rulemaking process by contacting the CFPB. While the new rule is nearly 2,000 pages long, we have done an initial review and believe that for the most part, we can declare victory on many of the issues that were debated during the rulemaking process. NOTE: Italicized text, below, is directly from the CFPB rule.

The New Disclosures

The Loan Estimate

The new Loan Estimate is a three-page document that combines the early two-page TIL and the three-page GFE. The Loan Estimate can be provided by either the lender or the mortgage broker and must be provided to the borrower within three business days of the application. It maintains the "tolerances" for lender recommended services that were contained in the 2010 HUD rule. Review a copy of the Loan Estimate.

The Closing Disclosure

The new Closing Disclosure is a five-page document that combines the three-page HUD-1 and the final two-page TIL. While the lender is ultimately responsible for the contents of the Closing Disclosure, it can be provided by either the lender or a combination of the lender and the settlement agent. The Closing Disclosure must be delivered to the borrower at least three business days before the closing. Review a copy of the Closing Disclosure.

An excerpt from the rule:

The creditor is required to provide the Closing Disclosure to the consumer at least three business days before the closing. 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 they comply with the final rule's requirements for the Closing Disclosure. 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. The final rule avoids creating uncertainty regarding the role of settlement agents and also leaves sufficient flexibility for creditors and settlement agents to arrive at the most efficient means of preparation and delivery of the Closing Disclosure to consumers.

While the new rule imposes additional regulatory burdens on the lender for delivery of the Closing Disclosure, the CFPB recognized the important role played by the settlement industry, and will continue to allow the Closing Disclosure to be provided by the settlement agent. We view this as a significant victory.

Re-disclosure and an Additional Three Business Days

While both the original rule and the new rule include a requirement that changes in the loan would require new disclosure and an additional three-business-day waiting period, the CFPB listened to our comments and significantly narrowed the circumstances that would require the re-disclosure and additional three-business-day period. Under the new rule, this requirement occurs under the following circumstances:

If the creditor makes certain significant changes – specifically if the APR increases 1/8 of one percent for most loans or 1/4 of one percent for loans with irregular payments.

If the loan product changes or if a prepayment penalty is added to the loan then a new form and 3 day period is required.

Less significant changes can be disclosed on a revised Closing Disclosure provided at or before closing without delaying the closing.

Title Insurance Premiums are Not Part of the APR Calculation

We were concerned about a provision in the original proposal that would have required the disclosure of an "All-in APR." That proposal was not adopted and as such, title insurance and its associated fees are not used in the calculation of the APR. ATG and ALTA were concerned about the implications of that requirement. We argued that title insurance is not necessarily a part of the loan transaction and therefore it should not be included. The CFPB ultimately agreed.

The Loan Estimate Still Refers to Owner's Title Policy as "Optional"

One of the more significant issues debated by the industry in the CFPB rule was the reference in the Loan Estimate to owner's title insurance as "optional." Despite our concerns that this reference would discourage the use of owner's title insurance and leave homebuyers unprotected, the CFPB unfortunately left the reference in the Loan Estimate.

Implementation

One of the more significant concerns about the final rule was the timeframe that the CFPB would provide for implementation. Compliance will require significant changes to procedures and adjustments to existing technology. We are comfortable that the August 1, 2015, implementation deadline is sufficient to make necessary adjustments.

We've not fully digested and analyzed the final rule, however we are comfortable that the CFPB took a reasonable approach, recognized the importance of the title and settlement services industry, and used the rulemaking process to develop new forms and procedures that will improve the consumer's ability to shop for title and settlement services.

ATG is grateful for the significant assistance you provided in helping to make our concerns known to the CFPB. We are optimistic about the outcome.

Other Resources for ATG Members

We encourage you to review this information carefully and Contact Us with questions or concerns. You may also submit questions/comments about the rule directly to ALTA.

David S. Huffman
ATG Senior Vice President - Title Operations

[Last update: 11-27-13]

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