New Closing Rules Remain a Challenge

It’s been a little more than a year since new federal closing rules took effect. Under the rules, the HUD-1 Settlement Form was replaced with a new Closing Disclosure, the Good Faith Estimate was replaced with a new Loan Estimate, and some new timing requirements were imposed. Real estate professionals continue to have concerns with the changes and were among the many people and organizations that submitted almost 1,600 comments to the Consumer Financial Protection Bureau as it works to finalize a rule that would try to improve  the process. NAR also submitted comments. Among other points, NAR says it remains too difficult for real estate professionals to get a copy of the closing disclosure so they can help their clients.

Below is a QA with officials from NAR and the Mortgage Bankers Association that discusses the Closing Disclosure and other issues with the new process. Representing NAR is Joe Ventrone, deputy chief of regulatory affairs, and representing the MBA is Pete Mills, senior vice president of residential policy and member engagement. In their discussion, they refer to the new rules either as the “Know Before You Owe” rules or TRID, which stands for RESPA-TILA Integrated Disclosure. In both cases, they’re referring to the closing rule changes that were finalized in 2013 and took effect last year on Oct. 3.

Joe Ventrone, NAR deputy chief of regulatory affairs: The TRID or “Know Before You Owe” rule has been a top priority for the industry since it was finalized in 2013, but we regularly hear from members and colleagues in the industry who have lingering concerns. Before we discuss how the industry is operating now, let’s talk about the goals of the rule. From the MBA’s perspective, why did these changes happen?

Pete Mills, MBA senior vice president of residential policy and member engagement: Home buyers invest a lot of energy in shopping for just the right home to meet their needs. Borrowers should be shopping for a mortgage like they shop for a home. Not every borrower is the same and not every lender or loan product is the same. As many REALTORS® can recall, before KBYO borrowers were getting a lot of information and paper that was not easy to decipher. With the rule and these new forms, the Loan Estimate and the Closing Disclosure, the Consumer Financial Protection Bureau was trying to consolidate overlapping disclosures, reduce confusion about loan terms and details for borrowers, and make it easier for consumers to shop and compare loan options. As important as it is for buyers to find the right home, it is just as important for them to find the right loan and understand all the key terms of that loan.

Ventrone: This was a challenging implementation and everyone in the process — lenders, settlement service providers, and REALTORS® — did a lot of work to get ready and be able to help consumers understand the new process. For their part, REALTORS® did a lot of work in the run-up to KBYO to educate themselves on what was coming. After all, staying current on developing issues is critical in this new regulatory environment. We believe the reforms were important and will ultimately aid the consumer by offering a clearer picture of their mortgage, but there’s no question there are still bumps in the road that need to be smoothed over. How does the MBA see it?

Mills: The KBYO rule was undoubtedly the most complex reform of the home mortgage disclosure regime ever undertaken, and there are definitely issues that need to be addressed. Despite the detailed nature of the rule, the first year of implementation has uncovered a number of challenges and questions. This resulted in a variety of different interpretations by different parties to the loan transaction that threatened to jam up the system, particularly in the secondary market. Fortunately, the CFPB heeded the industry’s call for a good-faith compliance period, and in August released a proposed rule to address some of the outstanding questions and concerns.

Ventrone: Is there anything specific that REALTORS® should know about the proposed changes to the KBYO rule that might help home buyers and refinancers?

Mills: The proposed changes to the rule provides lenders greater clarity on a wide variety of technical issues that are impeding the ability to sell loans into the secondary market and that expose lenders and investors to compliance and legal risks for minor errors on the disclosures. For example, the proposed changes would help ensure that KBYO does not result in delayed closings when the buyer and seller decide to change the closing date. There are other provisions that will make it easier to do one-time close construction loans and provide greater clarity on co-op loans. It’s important for the smooth functioning of the real estate sales process to have clear compliance requirements.

Ventrone: I’m glad you brought up need for additional clarity with respect to some components of the rule. REALTORS® are telling us that getting their hands on the Closing Disclosure has been a challenge since KBYO went into effect. They are saying some lenders and title agents cite concerns with federal privacy rules and simply won’t do it. In fact, nearly half of our members in a recent survey have reported trouble getting copies of the CD to review. The CFPB did include some additional guidance in its proposed rule to provide clarity on the interaction of KBYO with Regulation P, the CFPB’s privacy rules. We’re hopeful that will have a real effect on lenders. Does the MBA share that optimism?

Mills: In the proposed rule, the Bureau says that it is “usual, accepted, and appropriate” for creditors and settlement agents to provide a closing disclosure to the relevant parties. The proposed rule says this standard meets one of the exceptions to the restrictions in Regulation P on sharing consumer information. This provides some helpful clarity for lenders. With this language, we expect more lenders will now feel comfortable sharing the CD with their customer’s real estate agent. It’s important to remember, however, that Reg P only sets a legal floor for privacy standards. Some lenders may take extra steps to protect their own customers’ privacy, such as asking for a signed consent form from the borrower. This approach is commonly used today, and should not pose a significant barrier for your members getting the information they need.

Ventrone: Our members are trusted advisers who help guide consumers through a large, complex transaction, which lenders should appreciate when it comes to helping the client understand the CD. Do you agree that sharing the CD is not just a help to real estate agents — it makes good business sense, too?

Mills: At the end of the day, we all know that real estate is a business built on relationships. The clarification proposed by the Bureau should help smooth the process. We are all working toward the same goal of making sure that our clients walk away from the closing table feeling happy and confident with their decisions and prepared to be successful home owners.

— National Association of REALTORS®