On November 20, 2013, the Consumer Financial Protection Bureau released the nearly 1,900-page final RESPA-TILA Integrated Disclosures Rule. During that time, the mortgage industry was in the midst of complying with all the Qualified Mortgage requirements to meet the January 10, 2014 deadline. Who had time to think about what was yet to come? And now, we are once again faced with another monumental milestone to meet the requirements set out by the CFPB to be implemented by August 1, 2015. With January 10 long behind us, it is time to focus all efforts on the task at hand for the new Loan Estimate and Closing Disclosure – essentially unbundling everything that was done in 2010 and then some.
The CFPB set out to accomplish four goals: easier to use disclosure forms, improved consumer understanding, better comparison shopping and avoiding costly surprises at the closing table. Basically, it is to eliminate confusion for the American consumer and rectify any inconsistencies or conflicting information and overlap. This is great for the consumer, but not so much for the lender and vendor community. Let’s take a brief look at why this will be one of the biggest challenges yet in the history of this industry.
First and foremost, the responsibility and indeed enormous risk lies squarely on the shoulders of the lender with the penalties for noncompliance higher than ever. The total process from disclosing through closing rests solely on the lender to comply, and the requirements around producing the Loan Estimate and Closing Disclosure will fundamentally change mortgage operations. Failure to meet the requirements could result in unprecedented fine amounts. Lender delays on disclosing improperly and are found to be caused “knowingly” could face penalties as high as $1 million per day and penalties for disclosure violation under TILA unintentionally could result in a $4,000 fine per violation – not including damages and attorney fees.
That said, the disclosure form creation and changes are not simply just cosmetic. Here is a bulleted list of critical items the lender must address while implementing these changes:
>> Ensuring calculations are accurate as the fees and charges are now itemized and alphabetized so consumer knows what they are paying for
>> Timing and delivery of Loan Estimate, Re-disclosures and Closing Disclosure with knowledge of defined “business days”
>> Impact on technology/mortgage systems to accommodate necessary changes – huge challenge for IT managing dual systems and necessary data requirements
>> Delays in closing process
>> Complete rework of internal policies and procedures
>> Extensive re-training for departments and staff
>> A detailed, planned implementation
>> Controlled coordination and vetting of settlement providers
Lastly, and most important is for lenders to have a trusted and reliable working relationship with their document provider to ensure compliance is met to mitigate risk throughout this process. The overall time, effort and cost to implement these fundamental changes within an organization will increase enough, but it doesn’t need to be exacerbated exponentially due to inaccuracy and/or a failed implementation. The time to act is now to be fully prepared holistically for August 1, 2015.
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