The Consumer Financial Protection Bureau's proposal to update its mortgage disclosure rule did not give lenders what they most wanted: the ability to correct errors after a loan has closed and a release from liability for technical violations.
But the 293-page plan did provide a number of critical revisions to the CFPB's "Know Before You Owe" mortgage disclosure rule that will aid in compliance and allow the industry to close more loans.
The proposal would extend the rule's coverage to all co-op units so lenders do not have to defer to state law. It would also add tolerance provisions of total payments that potentially would help lenders reduce liability.
Importantly, the proposal would also address what lenders have called the "black hole" problem, when a borrower pushes back a loan's closing date after the final Closing Disclosure has been made, potentially forcing a lender to absorb increased costs through no fault of its own. Under the plan, a lender could use the closing disclosure to reflect changes in costs that would otherwise justify issuing a revised estimate.
"That's a big win for the industry," said Ben Olson, a partner at BuckleySandler and a former CFPB deputy assistant director in the Office of Regulations.
Other revisions include exempting down payment assistance programs from a 1% limit for recording fees and transfer taxes, which experts said could solve many compliance issues for housing finance agencies. The proposal also includes a variety of minor changes and technical corrections to affiliate charges, calculating cash to close, construction loans and even decimal places and rounding issues that have caused problems.
John Levonick, the chief compliance officer at Clayton Holdings, a Shelton, Conn., due diligence and consulting firm, said he is pleased with the plan.
"This addresses head-on a number of items we've struggled with," said Levonick. "This is not a cure-all, but it is a significant move in the right direction. Loans that otherwise might have been kicked out of a transaction, for issues that were considered material, now might be seen as non-material."
The bureau also made a change requested by the National Association of Realtors that allows for the sharing of the consumer disclosures with third parties to the transaction including the seller, real estate brokers and agents.
"There's a lot here that the industry will be happy with," said Richard Horn, a former senior counsel and special adviser at the CFPB who runs his own law firm.
By far the biggest disappointment is that the bureau did not provide more guidance on how lenders correct errors, an issue that has held up the sale of loans to secondary market participants and prompted repeated calls for more clarity.
The CFPB made it clear it has no intention of proposing additional cure provisions when errors are made.
Quyen Truong, a partner at Stroock & Stroock & Lavan, said the market furor over technical errors has subsided somewhat, but the agency does not want to say there is no threat of liability.
"The bureau is concerned that if it were to amend the rules to say that technical errors don't matter, then lack of concern about liability could cause the industry to believe that it could ignore those kinds of issues in compliance efforts," Truong said.
The CFPB also likely feared inadvertently encouraging weak compliance management. Instead, the agency stated that the mortgage industry should rely on Truth in Lending Act's provisions for cures of technical violations.
"From a policy perspective, changing things after all documents have been signed is not where the bureau wants to be," Olson said. "I don't think the bureau has any desire to increase litigation but they do worry a lot about the extent to which the industry prioritizes compliance."
But some in the industry are bothered, asking for other changes that have not been made.
Michelle Korsmo, the CEO of the American Land Title Association, said the required calculation for title insurance fees on mortgage disclosures remains inaccurate despite repeated attempts to change it.
"Unfortunately, after nearly a year of TRID implementation, consumers around the country continue to receive unclear information about their title insurance costs at the closing table," Korsmo said in a press release.
The proposal is open to comment until Oct. 18.