Dodd-Frank and the CFPB: The ‘fix’ is in

On Nov. 20, the Consumer Financial Protection Bureau (CFPB), issued a Final Rule amending RESPA (Regulations X) and the Truth in Lending Act (Regulation Z). The Final Rule sets the stage for implementing some “game changing” policies for residential real estate settlements. In a prior article entitled, The CFPB and Innovation: The Government May ‘Fix’ Us Yet, we discussed the provision in the Dodd-Frank Act that mandate combining the RESPA and TIL forms. The time is upon us…

The old

Anyone who has been practicing real estate, specifically residential real estate, for more than six weeks is at least passingly familiar with three federally mandated disclosure notices: the Good Faith Estimate, the preliminary Truth-In-Lending Disclosure (TIL) and the HUD-1 Settlement Sheet. As experienced real estate professionals, we have come to accept the TIL is about as incomprehensible a disclosure form that any government entity could devise, while the HUD-1 is a fairly effective balance sheet, demonstrating where the loan proceeds are being distributed. The amendments and changes that were implemented in 2010 made a valiant effort to clarify the information disclosed on the TIL; it was probably successful in allowing some consumers to compare numbers between and among competing lenders, but really did not succeed in making the information easier to digest.

The 2010 changes to the HUD-1 did a fairly decent job of breaking down the costs that buyers (and sellers) were obligated to pay, though the industry struggled with understanding and applying the “tolerance limits” and different “buckets” that were designed to explain which buyer-closing costs could (and could not) change. It seems, after three years, that title companies, real estate licensees, lenders and even consumers have become more comfortable working with the 2010 forms.

… And now you can disregard the past three years of learning.

The new

Effective August 1, 2015, the TIL and the HUD-1 will go the way of the eight-track tape player. Instead of providing a Good Faith Estimate and preliminary Truth-In-Lending disclosure to the consumer, the lender or mortgage broker must provide the consumer with a “Loan Estimate” no more than three business days after they submit a loan application. (Fortunately, the timing of the disclosure has not changed, and the defining of what constitutes an ‘application’ has been clarified.) The Loan Estimate form will replace the Good Faith Estimate and the preliminary Truth in Lending disclosure.  Theoretically, the Loan Estimate more clearly sets forth the costs of the loan, including the closing costs of the loan, for the borrower.

The three-page HUD-1 Settlement Statement is being replaced with the “Closing Disclosure”. The Final Rule emphasizes that the Closing Disclosure must be provided at least three business days before closing. Yes, this is the same requirement that has been in place since at least the 1990’s; but this time, they are serious… One of the major concerns that swept through the industry last year when the proposed final rule was published was the requirement that the consumer must be provided a new Closing Disclosure and three additional business days waiting period before settling in their mortgage if significant changes are made to the terms of the loan between the date of the Closing Disclosure and the closing date. The Final Rule has redefined – and somewhat loosened – what constitutes a “significant change”, based upon industry feedback. The conclusions that the CFPB has drawn from its test groups is that there will not be a sudden and marked increase in delayed settlements… We shall see…

Tolerances and buckets

Tolerances and buckets still exist, and there are still zero tolerance, a 10 percent tolerance and a no tolerance fees that industry professionals and consumers will have to navigate. However, a preliminary reading of the Final Rule suggests that the changes affecting the tolerances and buckets are not provocative.

Effective date

The effective date of the final rule is August 1, 2015, and it applies to transactions where the creditor or broker received an application on or after that date.

More to come

The Final Rule was almost 1,900 pages long, and it included an incredible amount of information. Please keep an eye towards PAR Just Listed for upcoming and ongoing discussions about these industry-changing innovations… YEP! The government may just “FIX” us yet!

Mr. Woodburn is an attorney with Caldwell & Kearns and serves as associate counsel to PAR. Mr. Swartz is also an attorney with Caldwell & Kearns.  A substantial portion of their practices is dedicated to providing advice and counsel to real estate licensees and representing and defending real estate salespersons and brokers in civil lawsuits and licensing claims across the Commonwealth. They routinely counsel employers on employee relations issues as two of the voices of the PAR Legal Hotline.