The Consumer Financial Protection Bureau notified the housing industry earlier this year that it planned to make some changes to the much-discussed TILA-RESPA Integrated Disclosure Rule, which is commonly known as TRID or “Know Before You Owe.”
In a new letter sent to the CFPB, the National Association of Realtors identifies three issues its members have seen with TRID and suggests fixes to those issues that could be included in the coming rule adjustments.
In April, the CFPB told the industry that it’s begun drafting a Notice of Proposed Rulemaking on the Know Before You Owe rule, saying in a letter that “there are places in the regulation text and commentary where adjustments would be useful for greater certainty and clarity.”
In its letter to the CFPB, NAR President Tom Salomone writes that the organization participated in two recent “listening sessions” with CFPB staff. Borne out of those sessions and discussions among NAR’s membership are three changes that NAR hopes will be included in the CFPB’s adjustments to TRID.
First, NAR asks the CFPB to clarify the rules around allowing lenders to share the Closing Disclosure form with “third parties” after receiving consent from the consumer.
According to NAR’s letter, prior to the implementation of TRID, real estate agents helped their clients by answering questions about the HUD-1 form and reviewing terms agreed to in the sales contract including concessions, escrows, commissions and shares of prorated taxes.
This form was routinely shared with agents in nearly all transactions, Salomone writes.
But since the implementation of TRID in October, Salomone writes that more than half of real estate agents surveyed said they have “problems” getting access to the Closing Disclosure form.
“Real estate professionals are even more likely to have issues getting access to the Closing Disclosure when settlement is delayed,” Salomone writes. “When real estate professionals do get access to Closing Disclosures, 50% have reported finding missing concessions and incorrect names or addresses, incorrect fees, commissions, and taxes.”
NAR’s letter notes that consumer privacy issues did not change as part of TRID, but states that some lenders felt that TRID “exposes them to additional liability” if they give copes of the Closing Disclosure to real estate agents.
“This is an unintended consequence of the rule that needs clarification from the CFPB,” Salomone writes. “NAR urges the CFPB to include language in the proposed rule stating that it is just as acceptable now as it was before Know Before You Owe for a lender to share the CD with third parties if the lender receives a consent form from the consumer.”
The benefits of such an arrangement are more than simply catching potential errors, Salomone writes.
“This will help lenders feel more comfortable sharing the CD with third parties when they have a consent form from a borrower,” Salomone writes.
“This will also help NAR communicate with industry partners that a consent form is permissible and encourage its use,” Salomone continues. “If real estate agents are able to review the CD with the borrower, they will help the process by aiding the consumer and finding technical errors that are more easily fixed by the lender before the loan is closed.”
NAR’s second issue involves potential changes to the Closing Disclosure that can (or cannot) be made after the form is sent to the consumer.
“NAR has received consistent feedback from mortgage lenders who are confused about whether or not changes can be made to the CD once it has been sent to the consumer within certain timeframes,” Salomone writes.
“What constitutes a valid change in circumstance that can be added to the CD after it has been mailed to the borrower (typically 6-7 days before consummation)? When are these changes allowed?,” Salomone asks.
NAR’s letter goes on to urge the CFPB to provide some clarity on whether lenders can” re-baseline costs” on the closing disclosure form after it has gone out to the consumer to reflect a “valid change in circumstance and give more information on the time frames that are allowed for these changes.”
And finally, NAR addresses the issues some lenders are having selling their loans to investors due to potentially minor TRID-related errors.
According to NAR, there has been “intense examination” by investors and due diligence firms on minor TRID-related errors.
“Some investors are refusing to buy loans with minor errors, even if the error doesn't negatively impact a consumer or lead to material liability,” Salomone writes. “Lenders can incur huge losses if they sell these loans in the scratch and dent market. This is compounded by the fact that investors are not accepting cures past 60 days, even though investors can take more than 60 days to review and return loans to the lender.”
Salomone goes on to pose a question about the future impact about access to credit if lenders are forced to keep their loans on warehouse lines for long periods of time or sell them at a loss in the “scratch and dent” market.
“NAR is concerned that the increased cost of manufacturing these loans will ultimately trickle down to the consumer and impact access to credit, especially for lower-income and first-time homebuyers,” Salomone writes.
Salomone concludes NAR’s third point by urging the CFPB to extend post-consummation timelines to correct minor TRID errors from 30 days to 180 days.
NAR also urges the CFPB to continue to work with due diligence firms and investors to educate them about loan salability and technical errors.
“NAR urges the Bureau to incorporate our recommendations and looks forward to additional reliable, written guidance on the Know Before You Owe rule,” NAR’s letter concludes.
Click here for read NAR’s full letter.