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Mortgage bankers question proposed loan disclosure forms

MBA: handling of closing costs inconsistent with RESPA

The presentation of closing costs on simplified mortgage loan disclosure forms proposed by the Consumer Financial Protection Bureau is inconsistent with tolerance requirements currently in place under the Real Estate Settlement and Procedures Act (RESPA), the Mortgage Bankers Association says in asking the bureau to meet with industry representatives "as soon as possible."

Lawmakers have directed the CFPB to draw up a simplified loan disclosure form that will replace the separate forms borrowers are currently provided to satisfy requirements of RESPA and the Truth in Lending Act (TILA). Lenders and groups representing consumers and the real estate industry have complained that having two sets of loan disclosures is confusing to borrowers.

The CFPB received more than 13,000 comments on the first two draft proposals it put forward, and has sought additional feedback on two new versions put forward on June 27.

The first two draft forms were focused on loan terms like interest rate. The latest prototypes — labeled "Redbud" and "Dogwood" for discussion purposes — focus on closing costs.

The "Good Faith Estimate," or GFE, developed by the Department of Housing and Urban Development (HUD) to satisfy RESPA requirements, is designed to help borrowers also evaluate trade-offs between a loan’s interest rate and settlement service charges.

To prevent "bait and switch" tactics by loan originators, HUD imposed "tolerances" on some fees, limiting how much they can differ from initial estimates.

Loan origination fees can’t change at all, and if required services such as title insurance are provided by a company selected by the lender, those fees aren’t permitted to change by more than 10 percent.

But the latest loan disclosures proposed by CFPB are inconsistent with those requirements, the MBA said in a July 5 letter to Elizabeth Warren, who’s overseeing the creation of the new bureau.

The Redbud prototype combines fees that can’t change with those that are subject to 10 percent tolerances, and also groups fees that are subject to tolerances with fees that are not, such as transfer taxes, the MBA said. The Dogwood prototype combines loan origination charges with costs for title insurance and other settlement services, the MBA said.

Both prototypes also combine origination fees and fees that are connected with the interest rate, which are subject to change at varying points in the life of the loan.

If, in the process of drafting new loan disclosures, CFPB intends to modify RESPA and TILA requirements, "we believe that point should be made clear so commenters can provide their views on the direction the new forms might take," the MBA said in its letter.

"Given the lack of clarity on this point, it is unnecessarily difficult for commenters to provide comprehensive and informed responses."

Given that it took HUD several years and two rule-making processes to develop the GFE now in use, the MBA questioned whether the weeklong comment period for the Redbud and Dogwood prototypes that closed July 5 was long enough.

In requesting a meeting with CFPB, the MBA said it "appreciates the outreach efforts of the bureau to collect feedback from the public on these forms," but that "it is important to assure that the process gives sufficient weight to the views of industry professionals and others who work with consumers on a daily basis. Quantitative polling of the public will not achieve this end."

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