WASHINGTON Several House lawmakers joined the call Thursday for a formal grace period for new mortgage disclosures that would go beyond an earlier decision by the Consumer Financial Protection Bureau.
The CFPB said last week that it would be "sensitive" to "good-faith efforts" by lenders to implement new disclosure rules, which go into effect Aug. 1.
The announcement disappointed some housing groups and lawmakers that were hopeful the agency would grant a more formal grace period protecting companies from enforcement and litigation through the end of the year. A number of mortgage groups have since urged Congress to take up legislation to fix the problem, pointing to a bill introduced last month that would mandate a yearend grace period.
"Can anybody think of a disadvantage to a five-month period in which those who tried to comply in good faith are held harmless for mistakes?" Rep. Brad Sherman, D-Calif., one of the bill's sponsors, said at a House Financial Service Committee hearing on regulatory relief, held by the subcommittee on financial institutions and consumer credit.
The rule, which was finalized in November 2013, combines the Truth in Lending Act with the Real Estate Settlement Procedures Act into one mortgage disclosure, called TRID. Hundreds of lawmakers signed onto bipartisan letters last month pushing the consumer agency to offer leniency for companies attempting to implement the updated disclosures, though it's unclear whether there's enough momentum for legislation now that the CFPB has spoken.
Supporters of the legislation argued that without certainty that lenders won't be punished for errors or mistakes, mortgage companies could pull back on lending as they get up to speed with the new disclosures. They noted that the rule spans more than 1,800 pages.
"They're not going to make loans," said Rep. Steve Pearce, R-N.M., another sponsor of the bill, pointing to the challenges facing companies in his district to come in compliance with the rule. "A very small company in my hometown spent $100,000 for the software that they need and they're not sure that's going to cure the problem."
Still, those backing the CFPB have raised questions about what the additional grace period would do beyond what the agency has so far promised given how long companies have already had to prepare for the new disclosures.
"If somebody is acting in good faith and makes an innocent, technical violation, [the CFBP is] not going to bring an enforcement action," said former Rep. Brad Miller, now a senior fellow at the Roosevelt Institute. "It's also been two years it seems like that's a long time to comply."
Meanwhile, Rep. Carolyn Maloney, D-N.Y., who led the letter writing campaign in the House ahead of CFPB's decision, took a more cautious approach in light of the agency's announcement, asking instead for more detail.
"Last week the CFPB responded to our letter and did promise to observe the same kind of grace period that they did for the [qualified mortgage] rule," she said. "The CFPB's letter was a little unclear on how long this grace period would last and I hope that they'll offer some further clarity."