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Nearly two years after HUD revamped mortgage disclosure rules, many lenders rely on manual processes — if any — and end up having to pay the difference between underestimated and actual closing costs.
August 26
The Consumer Financial Protection Bureau has decided to shift course before finalizing changes to the good faith estimate form, a project the bureau has been working on diligently since last summer.
At the urging of industry groups, the CFPB signaled it will concentrate on merging the Real Estate Settlement Procedures Act, and Truth in Lending regulations first before finalizing the GFE form that consumers receive three days after signing a mortgage application.
Anne Canfield, executive director of the Consumer Mortgage Coalition, believes it's important to figure out the "basic rules of the road" so lenders first can evaluate the prototype disclosure forms.
"We are very pleased that CFPB is going to take up merging RESPA and TILA first before they finalize any disclosure requirements," Canfield told National Mortgage News.
In announcing the formation of a panel of small businesses to review its mortgage application and closing disclosures, the bureau revealed that it wants even tighter cost estimates in the GFE.
Currently, there is a 10% tolerance on cost estimates when a lender recommends an independent settlement servicer provider to the borrower. If the final cost exceeds 10%, the lender must pay the difference. The bureau wants to move to a zero-tolerance level. "This is intended to make the loan estimate more reliable for consumers," the CFPB says.
Ballard Spahr partner Richard Andreano said zero tolerance would create greater risk for lenders. "Lenders will be concerned," he said, if such an approach is part of the RESPA-TILA proposed rule CFPB is expected to issue later this year.
In creating the 10% tolerance, HUD assumed a lender would be familiar with the provider's standard charge. However, the lender has no control over the final costs. So it was reasonable to allow a 10% tolerance, Andreano said.
In addition, RESPA prohibits lenders from entering into fee or pricing arrangements with settlement service providers. Andreano heads Ballard Spahr's mortgage banking group.
