To the surprise of many mortgage industry professionals, the Consumer Financial Protection Bureau (CFPB) on Wednesday announced that it had decided to extend the implementation date for its TILA-RESPA Integrated Disclosures (TRID) rules – also known as the ‘Know Before You Owe’ rules – to Oct. 1.
And it appears the reason is a procedural error.
‘The CFPB will be issuing a proposed amendment to delay the effective date of the Know Before You Owe rule until Oct. 1, 2015,’ Richard Cordray, director of the CFPB, says in a statement. ‘We made this decision to correct an administrative error that we just discovered in meeting the requirements under federal law, which would have delayed the effective date of the rule by two weeks.’
‘We further believe that the additional time included in the proposed effective date would better accommodate the interests of the many consumers and providers whose families will be busy with the transition to the new school year at that time,’ Cordray adds.
Although the extension is propbably, for all intents and purposes, a done deal, the CFPB points out in its release it is only a ‘proposed’ extension until it is officially approved. However, it seems unlikely that the CFPB will decide against the extension – and equally unlikely that it will change the date from Oct. 1.
The rules, which were originally to take effect on Aug. 1, take the current initial TILA disclosure and good faith estimate and combine those forms into the new loan estimate disclosure. They also take the current final TILA disclosure and HUD-1 settlement statement and combine those into the new closing disclosure. The CFPB claims the new, streamlined forms make the mortgage process easier to understand for borrowers, which is one of the bureau's goals as set by the Dodd-Frank Act.
For lenders, the new rules involve much more than just forms. In the past year, lenders have had to revamp their processes, software and systems – as have their partners – as well as retrain their employees to ensure borrower data is collected in the proper sequence; that the data is accurate; that the new forms are being populated with the right data in the right fields; and most importantly, that the people and systems are in place to ensure delivery of the new disclosures within the prescribed timelines. Not only has all of this cost lenders money, but it has also, in some cases, slowed productivity.
In a statement, David Stevens, president and CEO of the Mortgage Bankers Association (MBA), says, ‘The complexity of this rule, which impacts not just mortgage disclosures but also the business processes behind the entire real estate transaction, warrants the additional time to get it right and ensure that consumers are not adversely affected by the transition.’
‘The MBA will be providing comments on this proposal to recommend the best way to implement the delay in a manner that protects consumers and mitigates disruptions for lenders in the middle of this complex conversion,’ Stevens says. ‘The CFPB continues to prove itself capable of working in a transparent, constructive manner throughout this process, as was evident recently when they announced their intent to delay enforcement of lenders once the rules were to go into effect.
‘The MBA looks forward to continuing to work with the CFPB over the next several months as the agency works to fine-tune its approach toward implementing this complex rule,’ he adds.
Frank Keating, president and CEO of the American Bankers Association (ABA), says the extension of the implementation date ‘will help protect consumers from disruptions during a traditionally busy period for home purchases.’
‘It will also help to ensure new loan origination systems and compliance software under development by lenders and the vendors on whom they rely will be adequately installed and debugged, and staff training completed, before the effective date,’ he adds.
Recently, the CFPB, bowing to pressure from a bipartisan coalition of more than 250 members of Congress that had called for a grace period for enforcement of TRID, as well as pressure from industry trade groups, indicated that it would be ‘sensitive’ to lenders found to be making a good-faith effort to comply with the complex new rules.
Currently, it is unclear whether that same offer stands for a period after the rules go into effect on Oct. 1.
Keating says the ABA is pleased with the CFPB's ‘intent to maintain an initial supervisory and enforcement approach that takes into account good-faith efforts by lenders to comply.’
‘The TRID rules are among the most complex with which the banking industry has had to come into compliance, and the quality of compliance should be expected to improve based on the industry's learning curve once systems go live,’ Keating adds.
Chris Polychron, president of the National Association of Realtors (NAR), also applauded the extension, saying ‘NAR has long advocated the need to avoid implementing the new regulation during the peak summer selling season.’
‘NAR welcomes the CFPB's proposed extension to Oct. 1, as well as the earlier 'sensitivity' they offered to companies making a good-faith effort to comply with the new TRID regulation,’ Polychron says in a statement. ‘We will continue to work with CFPB to minimize any possible market disruptions or uncertainty that could develop following the implementation.’
‘Realtors appreciate that the CFPB has demonstrated an understanding of the need for additional time to accommodate the interests of the many consumers and providers,’ Polychron adds.
In a May 20 letter to Cordray, coalition members said they were concerned ‘this complicated and extensive’ set of rules might ’cause challenges during implementation,’ which, in turn, ‘could negatively impact consumers.’
‘As you know, the housing market is highly seasonal, with August, September and October consistently being some of the busiest months of the year for home sales and settlements,’ the coalition letter states. ‘We therefore encourage the bureau to announce and implement a 'grace period' for those seeking to comply in good faith from Aug. 1 to the end of 2015.’
As the letter points out, one of the challenges in implementing the new rules is that lenders cannot start using the new forms in real-life transactions until after the implementation date. As a result, ‘Lenders won't have the ability to fully test their systems and procedures ahead of time – thus increasing the risk of disruptions,’ the coalition letter states.