by Kara McGregor, Sr. Vice President of Business Development
I had a chance to sit down with members of our Best Practices Committee and talk about CFPB and new regulations coming in 2015. Independence Title’s Jay “Fitz” Fitzgerald, General Counsel , Denise Holmes, Vice President of Policy and Compliance, and Marjorie Tinnell, Vice President of Education, set me straight on the latest facts and rumors about changes effective next August.
KARA: So CFPB … that stands for Citizens For Peanut Butter? Carbon Free Paper Bank?
FITZ: Um … no. Well, maybe. But for our purposes, CFPB is the Consumer Financial Protection Bureau, the new sheriff in town overseeing federal regulation of lending practices. The bureau was created by Congressional legislation in 2010 in the aftermath of the mortgage meltdown. Its goal relating to real estate loans is to raise the standards on lending practices and to mandate more complete disclosures for borrowers.
KARA: Got it. Which leads me to ask, is this why we at Independence Title now have a “Best Practices Committee?”
MARJ: Yes, there are so many aspects to compliance with the new rules that we needed a coordinated effort. I think a lot of companies are going to get caught by surprise, and we were certainly not going to be one of them. And we don’t want our customers to be surprised either.
KARA: I like surprises, but maybe not this kind. What has the committee been focusing on? Please limit your answer to things that people who are not title insurance geeks will care about.
FITZ: That’s it for me
DENISE: I can answer that. The short version is that we’re creating best practice policies for compliance with stricter rules on security of consumer information, accuracy, handling complaints, and also looking at how Independence will address big changes in the timelines for transactions and the forms we use at closing.
KARA: So, is this a real-life exercise in the old joke, “I’m from the government and I’m here to help?”
DENISE: I’m going to duck that one and say that the goal is about creating transparency for the borrower, which is definitely a worthy undertaking. I should emphasize that the focus really is firmly on the borrower. The seller of the property regrettable seems a bit of an afterthought in the new disclosures.
MARJ: This is true. The new settlement form doesn’t include a place for the seller to sign.
KARA: Let’s clarify – who do these new rules affect?
FITZ: It’s probably more useful to ask “what transactions are not affected?” There are explicit regulatory exceptions for Home Equity Lines of Credit, reverse mortgages, mobile home loans, and to a limited extent, seller-financed transactions. Of course cash and commercial transactions are other animals altogether, and aren’t affected by these rules.
KARA: Don’t keep me in suspense – what exactly are these changes? Or let me ask that differently: what do our clients need to know about new CFPB rules nine months away from the effective date?
MARJ: I’m glad you refocused the question, or we’d be here all day.
DENISE: I think the place to start is new terminology. The Truth in Lending and Good Faith Estimate forms are being reconciled into one disclosure, the “Loan Estimate Form.” Another change that will trip us all up for a while is that we won’t have a HUD-1 Settlement Statement for these transactions – it will be called the “Closing Disclosure.”
MARJ: And the Closing Disclosure is not just a HUD-1 by another name, it’s a completely different form. The information you’re used to seeing a certain way in a certain place on the document will change. This is a challenge not just from the standpoint of education of our teams and our clients. Our software has to be reprogrammed, as well as all the systems that connect to the software.
DENISE: And in Texas, some of our disclosure requirements are stricter than the new rules mandate. We will likely have a separate Texas disclosure form that breaks down settlement fees more completely, specifically for the seller.
FITZ: Don’t forget the most memorable change in terminology from CFPB. We will no longer be scheduling “closings.” Now we invite all parties to the “consummation.”
KARA: Wow. Really?
FITZ: Well, here’s hoping not; the Bureau has continued to refer to “closing” in the way most people consider it. We did consider at one point whether we’d have to call the “closer” a “consummator” or “consummatrix” instead- you can imagine how that went over at the escrow officers’ meeting.
KARA: Ok moving on. What else do clients need to consider now about the new rules?
MARJ: Aside from there being new forms and more forms at closing- er, – consummation – the biggest planning issues are the new time lines that will result from disclosure requirements. Realtors should know that the 30-day closing will be a thing of the past when there’s a loan involved. The new norm will likely be more like 60 days.
FITZ: Another scheduling consideration is the requirement that borrowers be given the Closing Disclosure to review three business days prior to the closing – sorry, consummation. Factor in the requirement for re-disclosure under certain conditions, or failures of a lender to document delivery of the Closing Disclosure, and you can be looking at an additional three-business-day review period.
KARA: What about lenders? How should they prepare?
DENISE: Lenders have the largest burden of managing these changes, and have their own internal education and compliance processes. The lenders are on the hook for abiding by the new regulations, and the rest of us are charged with retooling to match new lending practices.
KARA: So how can a Realtor prepare for this, and experience minimal disruptions to business in the day-to-day?
MARJ: Start by being aware of new timelines and understand how those affect contracts being written as we approach August 1, 2015. And it’s going to be vital that they align themselves with lenders and title companies who are laying the groundwork for changes in the way transactions are processed. I would suggest “interviewing” vendor partners now. Ask them things like “what’s your plan for compliance with new CFPB rules?” “What kind of education are you doing internally?” “How can you help me as a Realtor?”
KARA: Great tips, and great segue to my closing call to action. Anyone interested in some advance planning for new requirements can visit the CFPB website and view the proposed timeline for transactions here. And better still, check out Marjorie Tinnell’s presentation, Introduction to CFPB. To quote Winston Churchill: “To improve is to change; to be perfect is to change often.” Keep calm and carry on!