I don’t know about the rest of you, but I love the holidays. The food, the family, the music, the gift-giving—it’s all great. Although, personally, my favorite part has always been the gift-getting. I know that’s not a popular thing to admit, but let’s be honest, getting stuff you want without having to pay for it is great.

Even better were the days when you would actually write a letter to St. Nick telling him exactly what you wanted. Well, as I was perusing the “Dear Santa” wish lists of my young nephews, I felt inspired to write up a wishlist of my own, not to St. Nick, but to St. Mick (the CFPB’s newly-appointed Acting Director, Mick Mulvaney). I’m not sure if he’ll read it—I’m not sure St. Nick ever read my letters as a kid—but I’m hoping that somehow, by some holiday magic, someone at the CFPB will see it and consider some changes that would certainly brighten the new year for our industry.

Dear St. Mick,

Here is my holiday wish list (and thanks in advance):

1. End regulation by enforcement and restore notice-and-comment rulemaking.

While I can’t vouch for all of the industries that the CFPB regulates, I do believe that the mortgage industry has learned its lessons from the past and, for the most part, is trying to do the right thing for consumers.

After all, consumers are our customers, our lifeblood. Without their continued confidence in our industry, we have no industry. And that means staying on the right side of law. You implement a new regulation, we’re going to figure out a way to comply with it. You implement ten thousand new regulations, we’ll hire a whole department to figure out how to comply with them.

All we ask of you, our regulators, is that you clearly tell us what the law is, before you start punishing us for not complying with it.

Historically, that’s the way rulemaking has worked. An agency or regulator proposed new rules, solicited feedback from the industry, considered that feedback, and then issued clear guidance (which the industry could expressly rely on) before enforcing those rules. There’s even a name for that process: “notice-and-comment rulemaking.”

Unfortunately, the Bureau’s past leadership didn’t exactly buy into that approach. They tended to prefer a slightly different rulemaking process—one that’s been dubbed “regulation by enforcement.” In case you’re not familiar, regulation by enforcement basically goes like this: (1) you identify some ambiguous regulation that needs clarifying; (2) you decide on an official Bureau interpretation for said regulation; (3) you pick out some unlucky lender (preferably one with deep pockets and a high profile) who’s not complying with the (heretofore unknown) interpretation that you’ve settled on for said regulation; (4) you fine said lender heavily for violating said (heretofore ambiguous) regulation; then, finally, (5) you publish a detailed enforcement action outlining the Bureau’s newly adopted interpretation of said regulation for everyone else to follow.

Now, I know what you’re probably thinking: that seems a bit . . . unfair? Capricious, even? Well, hey, I’m not here to point fingers. That’s all water under the bridge as far as I’m concerned. But our wish is that from now on, your Bureau goes back to telling the industry exactly what it is you want us to do, before you penalize us for not doing it. Fair?

2. Delay HMDA implementation and/or institute a safe harbor for good-faith compliance.

Speaking of how we, as an industry, are always trying our best to comply with new regulations, we could really use some more time on the Home Mortgage Disclosure Act.

No matter when those regulations go into effect, HMDA is undoubtedly going to significantly increase lenders’ costs to originate loans. That’s especially going to sting for a lot of the smaller banks and credit unions among us, who are already struggling to survive in the wake of soaring compliance costs imposed by other recent regulations.

By delaying HMDA’s implementation, though, it should help to at least ease the pain a bit, by allowing lenders to more gradually ramp up their compliance efforts (not to mention the attendant costs they will have to pass onto their customers).   

Now, I recognize that time may be running out for a full-on HMDA delay, being that it’s scheduled to go into effect January 1. Even if that’s not in the cards, though, I wonder if you might at least consider instituting a “safe harbor” period (like the one the Bureau adopted following TRID’s release), whereby it’s understood that examinations will focus more on good faith compliance efforts rather than strict enforcement of the regulations? That would sure go a long way toward easing a lot of minds.

3. Get to work on TRID 3.0.

One of the best things your predecessor did during his tenure was to pass a series of amendments to TRID, which are commonly referred to as “TRID 2.0.” TRID 2.0 was a sweeping, well thought out, and well executed proposal that conclusively answered a significant number of the questions that industry participants had been asking about TRID since its release. Truly, the Bureau should be commended for these amendments.

Unfortunately, though, TRID 2.0 did not resolve all of TRID’s shortcomings. There are still a few gaping holes in the regulations that the Bureau, whether intentionally or unintentionally, failed to address in their amendments. So, while I know you’ve announced a temporary moratorium on new regulations, I wonder if you could make an exception for some much-needed further tweaks to TRID. Call it TRID 3.0.

Here are some of the big-ticket items the industry would really love to see in a TRID 3.0:  

  • Simultaneous Issue Rate. This has been a real sore spot for title providers and a source of confusion for borrowers. TRID, as currently written, requires fees for title insurance to be disclosed in a way that is not only inaccurate for the vast majority of transactions, but also inconsistent with a number of state laws regarding disclosure of title rates.

Therefore, title providers in these states are having to create additional disclosure documents, with conflicting fee estimates, to comply with both the federal and state regulations. This is obviously a nightmare for consumers, providers, and lenders alike. If the Bureau’s goal is to reduce consumer confusion, then TRID’s treatment of simultaneous issue rates clearly needs to change.

  • Additional Cure Mechanisms. This is another one the industry has been asking for a while. So, here’s the deal: There are a number of scenarios where TRID does not provide any mechanism for lenders (or secondary investors, as the case may be) to cure defects within a loan. For example, a tolerance violation can typically be cured by issuing reimbursement to the borrower within sixty days of closing. But what if the violation isn’t identified until sometime after sixty days? And what about non-tolerance-related defects, such as a calculation error, a typo, or a failure to provide a disclosure within the prescribed deadline?

Are these loans forever doomed to the “scratch-and-dent” heaps, untouchable and unsellable at any reasonable return? Or are there additional mechanisms that could be put in place, whereby lenders could remedy any harms that may have been suffered by their borrowers, and thus rid the loans of their unsightly, unmarketable defects? I think there are, and the industry would sure love it if you could propose some.

  • Filling the “Black Hole.” Okay, this is an easy one. The Bureau actually released a proposal to resolve the so-called “black hole” issue at the same it finalized TRID 2.0. It was a great proposal. Pretty much the whole industry agrees that it sufficiently resolves the problem. Unfortunately, though, the Bureau never got around to finalizing that proposal. So, all we need from you on this one is to wave your magic pen and finalize the Bureau’s already-written proposal, and it will be problem solved. Easy-peasy.

Well that’s it. Just three things (although I suppose the last one is sort of a “three-in-one” gift). It would be great to find these under the tree on Christmas morning. But early 2018 would be fine too. Of course, by then the hot cocoa and the cookies will be gone.

Yours Truly,