MBA Urges Tweaks to CFPB ‘Know Before You Owe’ Rule

The Mortgage Bankers Association, in a letter this week to the Consumer Financial Protection Bureau, recommended changes to the Bureau’s TILA/RESPA Integrated Disclosure rule, also known as “Know Before You Owe, as the Bureau considers further revisions to the rule.

MBA commended the CFPB for addressing numerous complexities in KBYO and offered a 14-point set of additional points of clarification ( Comment_FINAL_10 18 2016.pdf).

KBYO, issued in October 2015, replaces four disclosure forms with two new ones, the Loan Estimate and the Closing Disclosure. The new forms are designed to be easier to understand and easier to use. The rule also requires that consumers get three business days to review the Closing Disclosure and ask questions before closing on a mortgage. Since its issuance, the CFPB has issued several clarifications and said it will continue to tweak the rule, addressing industry and consumer concerns.

In the letter, MBA Senior Vice President Public Policy & Industry Relations Stephen O’Connor urged that any final rule give particular attention to the following points:

Diagnostic Examination Period. MBA urged this policy be formally extended until the changes necessitated by a final rule under the Proposal have been fully implemented and it is clear that the compliance difficulties with the rule have been largely resolved. MBA also asked that the Bureau confirm that the diagnostic examination approach applies to the tolerances for costs. “While the tolerance concept for costs pre-dated the KBYO rule, the KBYO rule significantly altered the concept, and this required significant changes in programming, policies, procedures and training,” MBA said.

Cures and Corrections. MBA said clarifications are needed to avoid unnecessary disruptions in the secondary marketplace that cause undue increases in costs and reduce the availability of credit to consumers. The clarifications would allow correction of certain numeric errors, apply the current TILA correction provisions to KBYO disclosures where there is no overcharge to a consumer and reiterate the availability of the Closing Disclosure or CD to correct errors on the Loan Estimate. “MBA strongly believes these changes will work to incent compliance and avoid consumer confusion and harm,” MBA said.

Both Retroactive and Prospective Effective Dates. MBA said provisions of the rule clarifying ambiguities and uncertainties should, where the lender has followed an approach embodied in the Proposal, be effective retroactively to the effective date of the rule, October 3, 2015. “Where the lender’s approach differs from the interpretation in the rule and where systems changes are required to be implemented, lenders should have at least twelve months after the final rule is effective to make such changes and undertake necessary testing and training,” MBA said.

Refining the Proposal Regarding Rebaselining with a CD. MBA said it strongly supports the proposed clarification regarding use of a CD to rebaseline fees and believes it is a necessary clarification to address the changes in consumers’ circumstances and needs.

Exemption for Certain Loans. MBA said it supports efforts to facilitate use of housing finance agency loans to provide reasonable down payment assistance; nevertheless additional attention should be given to whether the proposed exemption is sufficient to achieve its objective

.–Timing and Waivers. MBA said additional guidance would be useful on circumstances when consumers can waive the three-day waiting period for purchase money loans. “Absent such guidance, there have been virtually no waivers,” MBA noted

.–New Tolerance for Total of Payments. MBA said it supports the Bureau’s decision to establish a tolerance for “Total of Payments.” Such a tolerance should explicitly complement the other tolerances which address components of the TOP to avoid confusion and be established at a more realistic level,” MBA said.

Tolerance Where No Shopping List. MBA said it opposes the adoption of a zero tolerance for shoppable services where a shopping list is not provided to the consumer. “Maintaining a 10 percent tolerance on third party fees–HUD’s former approach–where there is a failure to provide a shopping list is sufficient incentive,” MBA said. “It disincentivizes such failure by making the lender responsible for third party charges of entities not known to the lender to a significant extent. Establishing a zero tolerance as proposed is too harsh and makes lenders responsible for the precise amount of third party charges of entities that they have no knowledge or control over.”

Rate Lock on an LE. MBA said the final rule should clarify whether in all situations a revised LE is mandatory when there is a rate lock, whether or not the rate and costs change, or if it is required only when there is a need to disclose a revised estimate. “Lenders should not risk violating the rule when their policy is based upon a reasonable reading of the rule,” MBA said.

Interest Rate Dependent Charges on a Corrected CD. MBA said it supports the Bureau’s work to clarify that interest rate dependent charges may be revised on a corrected CD if the interest rate is locked on or after the date on which the creditor provides a CD and the CD is inaccurate as a result. MBA believes, however, that additional language is necessary to clarify this matter.

Lender and Seller Credits. In response to the Bureau’s question whether lenders should have the option of disclosing lender or seller credits as either credits specific to particular charges or general credits applicable to settlement costs, MBA urges that both options be available at this time. MBA urges that optionality be retained and the matter studied further for several reasons: (1) the application of seller credits is governed by contracts between buyers and sellers which may dictate one or either approach; (2) Government programs such as the Department of Veterans Affairs (VA) program dictate the use of specific credits; and (3) changes to one modality will necessitate new systems changes.

Payoffs. MBA said final guidance should make clear that payoffs should not be disclosed as closing costs on both the standard and alternative form and instead should be consistently disclosed as payoffs. Similarly, construction costs, regardless of whether loan proceeds to cover such costs are placed in a reserve or similar account (which the Bureau refers to as a “holdback”) also should not be treated as charges.

Model Forms. MBA strongly opposes the Bureau’s proposal to take away safe harbor protection for the sample forms that provide sample and frequently dynamic language to fill in the forms. “If adopted as proposed, only use of the blank model forms will provide a safe harbor and the guidance offered by the sample language will no longer be available,” MBA said. “As a result, there would be no model forms or clauses providing a safe harbor for various required language that must be inserted.” MBA said sample language or model clauses are necessary to help ensure compliance to protect customers

.–Availability of Borrower and Seller Information. MBA said while it appreciates the Bureau’s comments on applicability of the Gramm Leach Bliley Act to provision of disclosures to parties other than the borrower including real estate agents, questions remain however whether this applies to seller’s agents, buyer’s agents or both. MBA recommended a set of frequently asked questions about responsibilities of the respective parties to provide information would be particularly useful considering the varied roles and responsibilities of those providing services in conjunction with a real estate transaction.