The Consumer Financial Protection Bureau (CFPB or Bureau) has come under criticism recently for its heavy handed approach to regulation, including “regulation by enforcement”. Perhaps partially in response to those criticisms, and certainly in response to a January 2016 industry trade group request to the CFPB to publish unofficial guidance in the Federal Register, the CFPB issued a letter to the residential mortgage lending industry on April 28, 2016. In that letter the Bureau acknowledged there are “operational challenges” with the TILA / RESPA Integrated Disclosure rule (commonly known as TRID or Know Before You Owe). The Bureau promises to engage in formal rulemaking in late July of 2016, to propose changes to TRID that will provide “greater certainty and clarity” to the mortgage industry.
In what might qualify as understatements of the year, CFPB Director Cordray said he recognizes that “incorporating some of the Bureau’s existing informal guidance whether through webinar, compliance guide, or otherwise, into the regulation text and commentary would be helpful” and that “there are places in the regulation text and commentary where adjustments would be useful for greater certainty and clarity.” This is in stark contrast to remarks Director Cordray has previously made in which he resisted formalizing the informal guidance and amending TRID to address ambiguities.
Since its October 3, 2015 effective date, TRID has posed a number of issues for the mortgage banking industry. One hurdle involved coordinating implementation with all interested parties, such as mortgage brokers and correspondents, title companies, loan origination system software vendors, and other vendors. Exacerbating the implementation issues was TRID’s ambiguity in a number of areas, and its outright failure to address many issues. For example, the mortgage industry has struggled with issues such as how minor or technical errors may be corrected (such as alignment or shading of forms, rounding errors, check boxes that are improperly completed on the Loan Estimate, and data fields on the Loan Estimate that are not subject to either tolerances or redisclosures), and what penalties, if any, attach to those errors. Equally problematic has been uncertainty as to the conditions under which a Closing Disclosure may be cured, how to account for lender credits, disclosure of title insurance premiums, and disclosure of construction loans.
This lack of clarity has caused significant problems in the secondary market, particularly with the jumbo loan market. Because of the issues noted above and other issues, secondary market investors are often unwilling to purchase loans with minor technical violations, or with issues as to which the TRID rule is unclear.
While Director Cordray did not offer any details of what changes the CFPB might propose, the industry is hopeful the rulemaking will address the above noted issues and other issues the industry has pointed out to the CFPB. Director Cordray has promised that the Office of Financial Institutions, together with the CFPB’s Regulations and Markets teams, will hold one or two meetings in late May or early June before the Bureau issues its Notice of Proposed Rule Making (NPRM), to discuss issues with the industry. This will hopefully be an opportunity for the industry to offer input before the proposed rule is issued.