As the real estate industry continues to recover from the financial meltdown, mortgage lenders, title companies and closing professionals have been adapting to a wide variety of new regulations. And while lenders can quickly recite what they call the “alphabet soup” of regulators such as CFPB, OCC, FDIC and FFIEC, many of their requirements are little known outside the mortgage lending community. The country’s newest regulator, the Consumer Financial Protection Bureau or CFPB, is focused on one thing—protecting the consumer from financial harm. With the CFPB’s entrance on the scene, the landscape will change in numerous ways in coming years.
Ability-to-Repay/Qualified Mortgage
Lenders beset by a sharp drop in refinance volume in late 2013 came to grips with the new Ability-to-Repay and Qualified Mortgage (ATR/QM) rules in January 2014. While the jury is still out on the overall impact of the new rules on the industry, it is clear that the rules will probably help to prevent potential borrowers from qualifying for teaser rates and no-doc loans that they may not have the ability to repay.
Integrated Disclosures
The CFPB has set August 1, 2015 as the effective date for the new Loan Estimate and Closing Disclosure forms that will (almost) replace the Good Faith Estimate, Truth-in-Lending and HUD-1 disclosures used today. Reverse mortgages and certain home equity transactions will continue to use the current disclosure, which could create some confusion on those rare 80/10/10 transactions.
Perhaps the biggest change is the new “three day rule,” which requires that the borrower receive the Closing Disclosure form three full business days prior to consummation. Lenders and settlement agents are already beginning to work out the details about how this new form will be produced and delivered. All real estate professionals will require training on the new forms in order to help guide their buyers and sellers.
Quality Service Providers
While real estate professionals are dealing with new borrower qualifying requirements today and will be dealing with new disclosures next year, CFPB and other regulators have been putting increasing pressure on all lenders to ensure that their third-party service providers meet very high standards. This, in turn, has caused lenders to put title and settlement providers under a microscope as they routinely handle vast sums of lender funds and considerable amounts of consumers’ non-public personal information. Expect lenders to be spending more time on their approved settlement provider lists as the “flight to quality” continues to accelerate.
Affiliated Business Arrangements
While requirements for the qualified mortgage and Closing Disclosure fees are more stringent for affiliated business arrangements (AfBA’s), the big news is that the CFPB is taking a hard look at the operational and financial aspects of these arrangements. CFPB has taken over enforcement of RESPA from HUD and they are serious about making sure AfBA’s are operating under both the spirit and letter of the law. Recent enforcement actions demonstrate the Bureau’s intention to ensure that consumers are aware of these arrangements and understand their options for mortgage and title and settlement services. Brokers with mortgage and or title AfBA’s should pay special attention to compliance in the new era.
Transforming the Process
The CFPB has a passion for improving the mortgage closing process. In their “Know Before You Owe” initiative, they focused on making disclosures clear for consumers. In April, the CFPB convened a public meeting to announce their new report, Mortgage Closings Today, which is an excellent synopsis of what can be improved in the mortgage closing process. The CFPB focused on two areas: reducing the overall number of disclosures and moving toward eClosings. With a pilot already announced, expect more to come in the area of moving the mortgage process to eClosings.
Impact on Real Estate Brokerages
In light of the significant changes in store, it is time for loan brokers to talk with their lenders and title and settlement providers about education opportunities and readiness in advance of the effective dates. Also, continue to look for updates from the CFPB as we move closer to the implementation period by following the mortgage rules on www.consumerfinance.gov or www.stewart.com/cfpb. With the only constant being change, now is the time to begin planning to make sure your agents are fully informed and ready to help the homebuyers of tomorrow.
This article is intended to provide an overview of the CFPB and pending regulations. For the full version of the proposed rules, please visit www.consumerfinance.gov.
Marvin Stone is CFPB program manager with Stewart®.
For more information, visit www.stewart.com/cfpb.
© Stewart Title Guaranty Company 2014. All rights reserved.
