Grading The CFPB

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Many in the industry have rebuked the work done by the Consumer Financial protection Bureau, but their work is certainly needed. The best case of the CFPB’s successes and failures can be seen in their handling of TRID. The initial rule lacked the specificity needed for it to be adhered to. As a result, the CFPB extended the deadline from what was August to October. That decision was met with a lot of adulation by the mortgage industry.

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At the time, MBA President and CEO David H. Stevens on news that the CFPB would delay enforcement of the new TILA-RESPA Integrated Disclosure (TRID) regulation, said, “MBA welcomes the news that the CFPB will recognize the good faith efforts of lenders to comply with TRID by delaying enforcement for a period after the new rules go into effect on August 1st. After speaking with Director Cordray, I believe the Bureau has listened to the input of MBA as well as other stakeholders about how best to enforce TRID. With so many difficulties around integrating systems, the industry needs flexibility to ensure consumers do not incur costs or lose home sales due to unforeseen problems. This enforcement grace period is a win/win for the industry and consumers alike.”

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So, that’s it, the CFPB gets it right, right? Not so much. The new rule was still too ambiguous for the industry to fully embrace. This development prompted the CFPB to roll out what many are calling TRID 2.0. In discussing this move, Rob Nichols, President and CEO of the American Bankers Association, welcomed this new version of TRID. Nichols said, “We appreciate Director Cordray’s responsiveness to our concerns about the CFPB’s Know Before You Owe rule. The agency’s interim steps and guidance efforts are welcome, and we agree that several issues will be best resolved in the rule-making process that is being initiated. We are particularly pleased that the notice of proposed rulemaking is on a fast track, which will accelerate and strengthen strong compliance regimes. Many of the elements the industry identified for clarification or amendment were developed in ABA’s compliance working group meetings, and we look forward to the opportunity to continue sharing banker feedback with the CFPB.”

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Similarly, Pete Mills, Senior Vice President of Residential Policy and Member Services at the MBA, added, “MBA is very pleased with CFPB’s letter [to adjust TRID] and believes the approach laid out should provide a swift path to issuing a final rule that will give lenders, the secondary market and consumers the clarity and consistency of disclosures the market needs. In the meantime we appreciate that the Bureau’s “diagnostic period” for the Know Before You Owe rule will continue to accommodate good faith compliance efforts. Finally, we look forward to continuing to work with the Bureau on this and other issues in hopes of protecting consumers and strengthening the real estate finance industry.”

So, it seems like the CFPB gets kudos for first delaying the deadline and then making changes to the rule, right? Not really. Michael Cremata, Corporate Counsel at ClosingCorp, points out, “With regard to TRID 2.0, my sense is that most commentators and industry trade groups are a bit underwhelmed by the CFPB’s proposed amendments. This is not, frankly, too surprising to me because I think a lot of people in the industry had unrealistic expectations about what these amendments were going to do.

“Cordray made clear in his letter announcing the proposed amendments, back in April, that they would be aimed at merely “incorporating informal guidance” and “clarifying” certain parts of the text of Regulation Z. Nonetheless, there were a lot of people in the industry who seemed to be expecting the CFPB to make substantive changes with these amendments, and even to reverse some of their previously-stated positions.

“A good example of this is the controversy surrounding TRID’s treatment of simultaneous issue title insurance premiums,” continued Cremata. “TRID, of course, requires that full (undiscounted) title premiums be disclosed on the Loan Estimate, and folks in the title industry have been fighting the CFPB on this ever since the proposed rule was first introduced in 2012. Repeatedly and consistently, the CFPB has stated that, despite all the concerns raised by providers and trade groups—that it’s not accurate for the majority of transactions; that it conflicts with state law; that it harms consumers by decreasing their likelihood of purchasing owner’s title—they believe that disclosure of the full title premiums on the Loan Estimate is in the best interest of the consumer. The CFPB has really never wavered from this position, yet, there were still a lot of people in the industry who were optimistic these amendments would modify TRID’s treatment of simultaneous issue rates. I think that optimism was, unfortunately, misguided.”

Does that mean that the CFPB gets a failing grade for TRID 2.0? No necessarily, adds Cremata. “I think the CFPB deserves a lot of praise for the breadth of changes covered in what the amendments describe as the “more minor changes and technical corrections.” These changes might not be headline-grabbers, but for those of us who are in the trenches day in and day out, trying to design products and processes for preparing closing documents, calculating fees, curing tolerance violations, etc., they are tremendously helpful. I commend the CFPB for answering calls to memorialize much of the informal guidance they have provided in the past, and the comprehensiveness with which the amendments accomplish this is truly impressive.

“I would encourage anyone involved in the mortgage origination progress to carefully review these portions of the amendments, because they do a good job of highlighting what are some of the most difficult issues lenders need to solve with regard to TRID. I think they also highlight just how complex—and daunting, really—TRID compliance is for lenders, and therefore how important it is to implement good processes and technologies to help solve these challenges.”

Prominent executives like NAMB President Rocke Andrews, CMC, CRMS voiced his support of TRID 2.0. Andrews said, “NAMB is pleased that Director Cordray and the CFPB have taken steps towards making adjustments in the regulatory text of the Know Before You Owe rule and look forward to participating in any upcoming meetings to further discuss the rule,” said Andrews.”

So, it’s safe to say, that how the CFPB handled TRID is up for debate. So, what’s next for the CFPB? Next CFPB will set its sights on HMDA. I would suggest that maybe the best way to grade the CFPB is not in its rulings, but in the impact that its rulings have had on the mortgage industry.

John Levonick, Director, Regulatory Compliance at Clayton Holdings, put it this way: “Through TRID and the HMDA regulations, the subtext of the CFPB’s approach to regulation is three fold: 1) educate consumers (TRID); 2) force technology advancement and adoption in financial services (TRID and HMDA); and 3) create an environment of responsible lending through a data driven supervision model (HMDA). The CFPB understands that the mortgage lending industry has been particularly slow to adopt new technology over the years, as compared to other industries, and has not had ample incentive to break away from antiquated processes and a patchwork of proprietary and third party technology. This new line of regulations from the CFPB is creating a Darwinsitic paradigm by opening the door for new innovation, forcing organizations to be responsive to change. “

So, if the CFPB is prompting industry innovation, I personally think that’s a good thing and they deserve some credit.

About The Author

Tony Garritano
Tony Garritano is chairman and founder at PROGRESS in Lending Association. As a speaker Tony has worked hard to inform executives about how technology should be a tool used to further business objectives. For over 10 years he has worked as a journalist, researcher and speaker in the mortgage technology space. Starting this association was the next step for someone like Tony, who has dedicated his career to providing mortgage executives with the information needed to make informed technology decisions. He can be reached via e-mail at tony@progressinlending.com.