Updates are Proposed for the “Know Before You Owe” Mortgage Disclosure Rule
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Changes to yield more clarity, while preserving consumer protections
Back in April the Consumer Financial Protection Bureau (CFPB) announced that it would make updates to its Know Before You Owe mortgage disclosure rule also called TILA-RESPA Integrated Disclosures rule (TRID); amid industry requests for more rule clarity. Although the changes are welcomed, one of the items needing addressing, clarity and certainty on the secondary market, wasn’t addressed.
As of now, the mortgage industry still must adhere to the original CFPB guidance that “examiners will be focusing on whether companies have made good faith efforts to come into rule compliance.”
Here are the full rule updates and explanations from the CFPB:
Tolerances for the total of payments: Before the Know Before You Owe mortgage disclosure rule, the total of payments disclosure was determined using the finance charge as part of the calculation. The Know Before You Owe mortgage disclosure rule changed the total of payments calculation so that it did not make specific use of the finance charge. The Bureau is now proposing to include tolerance provisions for the total of payments that parallel existing tolerances for the finance charge and disclosures affected by the finance charge.
This change would make the treatment of the total of payments disclosure consistent with what it was prior to the Know Before You Owe mortgage disclosure rule.
Housing assistance lending: The rule gave a partial exemption from disclosure requirements to certain housing assistance loans originated primarily by housing finance agencies. The Bureau’s proposed update would promote housing assistance lending by clarifying that recording fees and transfer taxes may be charged in connection with those transactions without losing eligibility for the partial exemption. The rule would also exclude recording fees and transfer taxes from the exemption’s limits on costs.
Through the proposed update, more housing assistance loans would qualify for the partial exemption, which should encourage lenders to partner with housing finance agencies to make these loans.
Cooperatives: The Bureau is proposing to extend the rule’s coverage to include all cooperative units. With a cooperative, a buyer becomes a shareholder in a corporation that owns the property. The buyer is then entitled to exclusive use of a housing unit in the property. Currently, the rule only covers transactions secured by real property, as defined under state law. Cooperatives are sometimes treated as personal property under state law and sometimes as real property.
By including all cooperatives in the rule, the Bureau would simplify compliance.
Privacy and sharing of information: The rule requires creditors to provide certain mortgage disclosures to the consumer. The Bureau has received many questions about sharing the disclosures provided to consumers with third parties to the transaction, including the seller and real estate brokers. The Bureau understands that it is usual, accepted, and appropriate for creditors and settlement agents to provide a closing disclosure to consumers, sellers, and their real estate brokers or other agents.
The Bureau is proposing additional commentary to clarify how a creditor may provide separate disclosure forms to the consumer and the seller.
David Stevens, Mortgage Bankers Association President and CEO, assesses the CFPB’s latest move to reevaluate TRID’s effect on lenders and consumers, “MBA appreciates the CFPB’s efforts to update and clarify certain aspects of the ‘Know Before You Owe’ rule. This particular regulation has a big impact on both borrowers and lenders, so it’s important that the Bureau and stakeholders continually reassess the implementation process to ensure its effectiveness. We look forward to commenting on the rule, and continuing to work with the CFPB to gain further clarity in order to improve this and other rules and regulations.”
Dan Berger, President and CEO of National Association of Federal Credit Unions, is a little hesitant to sign off on the changes as encompassing enough of what’s needed, “NAFCU appreciates the CFPB revisiting the TRID rule and, at first glance, there appear to be a few positive components that we strongly advocated for on behalf of our members. Most notably, the bureau has taken our advice regarding the codification of its informal compliance guidance. However, the bureau has not gone nearly far enough to address the numerous substantive compliance issues that have been highlighted by credit unions. Although our compliance experts will continue to analyze the proposal to identify its full impact, NAFCU believes this should be the first step in a process to create a mortgage disclosure rule that is workable for financial institutions and benefits consumers.”
The CFPB is allowing input from the public and industry, with written comments on the proposal due by October 18, 2016. All input will be weighed before final regulations are issued.
HousingWire. CFPB will update Know Before You Owe rule