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CFPB Plots 'Clarifying' Changes to Mortgage Disclosures in July

The Consumer Financial Protection Bureau will propose changes in late July to its mortgage disclosure rule to provide "greater certainty and clarity" to the mortgage industry.

In a letter Thursday to industry trade groups, CFPB Director Richard Cordray said the bureau is drafting a proposal on the "Know Before You Owe" rule that went into effect on Oct. 3.

Though Cordray did not provide details of the changes, industry groups have asked for further guidance on a dozen significant issues, including how to cure errors, account for lender credits, and calculate cash-to-close transactions.

Cordray wrote in the two-page letter that regulators "will continue to be sensitive to the progress made by those entities that have squarely focused on making good-faith efforts to come into compliance with the rule."

"We do recognize that incorporating some of the bureau's existing informal guidance … into the regulation text and commentary would be helpful," he wrote "We also believe that there are places in the regulation text and commentary where adjustments would be useful for greater certainty and clarity."

While the rule was designed to help consumers better understand the total costs of a home loan, the new disclosure forms to borrowers include hundreds of variables making compliance more difficult and costly.

The rule, commonly known as TRID, combined mortgage disclosures required by the Truth-in-Lending and the Real Estate Settlement Procedures acts.

Cordray's letter Thursday was a response to a request by eight industry trade groups in late January urging the bureau to publish unofficial guidance on TRID in the Federal Register.

Pete Mills, a senior vice president of residential policy and member services at the Mortgage Bankers Association, said the changes requested by the industry do not involve policy issues but rather resolving differing interpretations of the rule. He and other industry groups were pleased that the CFPB has been working on a draft proposal.

"We knew there was a cleanup rule coming and we're pleased this is on a faster track than we expected," Mills said.

Rob Nichols, president and CEO of the American Bankers Association, said in a press release, "We agree that several issues will be best resolved in the rule-making process that is being initiated."

Cordray has previously appeared to resist making formal changes and has engaged in plenty of back-and-forth exchanges with the industry. He sent a letter in April to Sen. Bob Corker, R-Tenn., describing the hundreds of events and meetings in which CFPB staff have address questions about the rule.

The mortgage industry has pressed for leeway in early exams on TRID and guidance on how to cure minor errors. The rule has raised additional questions about construction loans, title insurance policies, simultaneous second liens and payoffs on purchase money loans, among others, Mills said.

Cordray had sent a letter on Dec. 29 to David Stevens, the MBA's president and CEO, responding to industry concerns. But without formal guidance, some mortgage investors said they were hamstrung and could not purchase loans with TRID errors.

"We strongly urge the CFPB to publish the substance of the December 29 letter in the Federal Register as an interpretative rule, bulletin, statement of policy, supervisory guidance, or other authoritative form," the trade groups stated. "Publishing the letter as authoritative CFPB policy would provide entities greater confidence to correct errors for the larger purpose of preserving liquidity in the system and affordable loans for consumers."

A major issue with TRID is that costs for violations are steep. The rule expanded the amount of potentially erroneous information for which lenders and investors could be held liable.

For lenders, the CFPB can impose civil money penalties of $5,000 per day per violation for noncompliance, $25,000 per day for reckless violations and $1 million per day for knowing violations. Such fines do not apply to trusts, but they fear being sued by their investors in the event of loan losses.

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