Mortgage industry: Give us a “good-faith” grace period on TRID
Heavy burden of untested TILA-RESPA process worries bankers, housing experts
Key figures in the housing industry testified before the House Subcommittee on Housing and Insurance Thursday, urging members to support a good-faith grace period for compliance with the massive TILA-RESPA Integrated Disclosure requirements that go into effect Aug. 1.
The TRID rule, which was brought forth by the Consumer Financial Protection Bureau, has a sweeping impact on the real estate market through the implementation and compliance costs it requires.
Testifying before the subcommittee were Cynthia Lowman, who is president of United Bank Mortgage Corp., on behalf of the American Bankers Association; Diane Evans, vice president of Land Title Guaranty Company, on behalf of the American Land Title Association; Laurie Goodman, center director of the Housing Finance Policy Center at the Urban Institute; and Chris Polychron, on behalf of the National Association of Realtors.
At issue are the TRID requirements.
A recent survey conducted by Capsilon Corp., found that 41% of mortgage lenders report that they are not prepared to meet the August deadline to comply with TRID.
Despite this, CFPB Director Richard Cordray said just two days ago that it will take an act of Congress to delay the implementation of TRID. The Dodd-Frank Wall Street Reform and Consumer Protection Act transferred rulemaking authority for both RESPA and TILA to the CFPB.
“These new rules affect the entire mortgage-lending industry, including lenders, service providers, appraisers, escrow agents and virtually anyone with a relationship to the mortgage lending process,” Lowman said. “They will significantly reshape the housing-finance market, which comprises a substantial portion of our country’s gross domestic product and touches the lives of nearly every American household. If we do not get this right it will have a negative impact on consumers, banks and the recovery of the housing market.”
Regulatory implementation is further complicated by the fact that most banks – and particularly smaller community banks – rely on vendors for regulatory compliance needs and the accompanying software updates and system upgrades. An ABA survey found that while 74% of banks are using a vendor or consultants to assist with TRID implementation, only 2% of the compliance systems had been delivered by the month of April. Nearly eight in 10 banks (79%) couldn’t verify a precise delivery date or were told they wouldn’t receive systems before June.
“Simply put, there is no realistic way that those banks can adequately prepare for the current Aug. 1 implementation,” Lowman said. “Banks that have not fully implemented by the deadline will have to curtail mortgage lending until systems are in place, delivering a heavy blow to the mortgage market at a crucial time of the year.”
On Nov. 20, 2013, the CFPB finalized its mortgage disclosure rule and released “Know Before You Owe” forms that replaced TILA and RESPA forms with two consolidated mortgage disclosures: the Loan Estimate and the Closing Disclosure.
Almost a year after the CFPB issued its rule, the CFPB proposed two substantive revisions after receiving comments from industry participants and consumer advocates. The CFPB’s rule had required lenders to provide consumers with a revised Loan Estimate on the same day that the loan’s interest rate was locked in.
The revised rule gives creditors three business days to issue the revised loan estimate. The second revision facilitates lenders’ ability to issue a revised loan estimate for new construction loans in cases where loan consummation is expected to occur at least 60 calendar days after provision of the original Loan Estimate; previously, the rule did not readily provide a mechanism for lenders to reserve the right to issue the revised estimate.
The problem for the industry is that while stakeholders have implemented changes to technology platforms, staff training, and business practices, the new Integrated Disclosure forms may not be used prior to Aug. 1, which they say does not give consumers, the industry, or the CFPB an opportunity to test the new closing process in real time.
“For the majority of real estate transaction, the rule requires a complicated formula that will disclose to consumers an inaccurate price for title insurance. Under this new rule, the CFPB actually mandates that the correct and actual price of title insurance products be withheld from consumers,” Evans told the subcommittee.
H.R. 2213, introduced by Congressman Steve Pearce, R-N.M., and co-sponsored by Congressman Brad Sherman, D-Calif., prevents enforcement of the integrated disclosure requirements and the filing of any related lawsuit if (1) the person has made a good-faith effort to comply with the requirements and (2) the conduct alleged to be in violation of the requirements occurred on or before Dec. 31, 2015, thus allowing stakeholders and the CFPB to test the effective operation of the rule.
“You don’t put the captain on trial for problems during the shakedown cruise,” Sherman told committee members. “It shouldn't take an act of Congress to get this.”
Goodman told the committee that the CFPB should be urged to allow for the grace period, but it should be done legislatively.
Polychron said that NAR supports the grace period.
The implementation date comes in the midst of the busy summer home buying and selling season. Even if only 10% of transactions experience closing issues, that’s as many as 40,000 transactions a month, according to NAR home sales data. A grace period through the end of 2015 would delay enforcement to the slower winter months when fewer consumers would be negatively impacted.
“The CFPB has effectively integrated the rules, but now we need them to ensure a smooth implementation, especially since there is no opportunity to comply early,” said Polychron. “A five-month testing period will provide enough time for everyone to get it right, and ensure the rule works effectively for consumers, who shouldn’t have to bear the burdens of the industry conforming to the new regulatory requirements.”
The Mortgage Bankers Association likewise strongly urged the subcommittee to support the grace period.
“We would like to make it clear that we are not asking that the transition to the new forms be delayed. Under the circumstances, however, vigorous enforcement and litigation should not apply until after a reasonable grace period ends,” the MBA said in a formal statement to the subcommittee. “Accordingly, and consistent with requests made by a bipartisan group of members of this very subcommittee, we are asking that the bureau or, if necessary, Congress, take action to establish a period until Jan. 31, 2016, suspending enforcement and liability where those subject to the rule use the forms and make their best efforts to follow the rule.
“A grace period would allow both stakeholders and the CFPB a much needed opportunity to identify friction points and for the bureau to actively engage and address concerns authoritatively. The grace period should also apply to other federal and state enforcement,” the MBA statement reads.
In a letter to the subcommittee, Brad Thayler, vice president of legislative affairs for the National Association of Federal Credit Unions, likewise implored the members to extend a good-faith grace period on enforcement.
"NAFCU’s member credit unions have been working tirelessly with their staffs and their vendors to navigate through the complex and voluminous TILA/RESPA rule. While NAFCU firmly believes that our members have taken the steps necessary to be in compliance as of the Aug. 1, 2015, effective date, we are concerned that credit unions have been restricted in their ability to conclusively test their new platforms for strict compliance with the TILA/RESPA rule,” Thayler wrote.
Thaler referred to the announcement earlier this year by National Credit Union Administration Chairman Debbie Matz to NAFCU that the agency will consider credit unions’ “good faith efforts toward substantial compliance” with the new TILA/RESPA rule for credit unions the agency examines.
Thayer said that such a policy should be implemented by the CFPB as well, and to that end urged support of HR 2213.
The MBA also wants more guidance from the CFPB on questions that will arise after TRID takes effect.
“The final rule, comprising 1,888 pages, is far more than a new set of forms – it is a wide-reaching new regulatory regime that changes the timing and requirements for the entire real estate settlement process, not just the mortgage transaction,” MBA’s statement says. “Following the issuance of this rule, it has taken virtually all of the implementation period to discern the countless implementation questions it has raised and it has also taken most of that time for the CFPB to provide answers to some but not all of these questions.”
A note from the committee said retrofitting forms and information technology systems so they comply with the new rule will cost an estimated $100 million that will be passed on to consumers trying to buy a home.
Further, the note says, it’s unclear whether the proposed changes will actually simplify the mortgage closing process and provide a meaningful benefit to consumers or at least a benefit that outweighs the higher costs.