When the new disclosure rules were rolled out in October of last year, the biggest concern in the real estate industry was that the TRID (TILA-RESPA Integrated Disclosures) rule would delay closings, causing snafus in buyer and seller timelines.
However, a more significant problem for real estate agents has since emerged: Getting access to the Closing Disclosure (CD).
Now, the National Association of Realtors (NAR) has outlined the real estate segment’s wish list of changes to the complex rule — including easing that particular pain point for agents. NAR sent a letter to the Consumer Financial Protection Bureau (CFPB) with an array of suggestions.
TRID, take 2
The CFPB announced in April that it has “begun drafting a notice of proposed rulemaking on TRID,” or the “Know Before You Owe” rule, as the bureau prefers to call it. The proposed rule, which the CFPB expects to release in late July, will address “places in the regulation text and commentary where adjustments would be useful for greater certainty and clarity.”
In a letter written by NAR President Tom Salomone on behalf of the association’s 1.1 million members, NAR encourages the CFPB to add “reliable, written guidance” into TRID’s text to make implementation of the rule more effective.
“NAR is concerned about increased consumer frustration with the loan process, increased costs to the consumer and a negative impact on access to credit if there is continued lender and investor confusion and inconsistent application of the complex rule,” the letter states.
Sharing the Closing Disclosure with third parties
First up on NAR’s wish list is fixing what is probably the biggest complaint agents have about an unintended consequence of TRID. Prior to TRID being enacted, real estate agents reviewed the HUD-1 with their clients to answer common questions about things like concessions, escrows, commissions and shares of prorated taxes, but since TRID became the law of the land, many lenders are refusing to share the new CD with them.
Their reluctance is due to the consumer financial privacy protection requirements of Regulation P, which implements the Gramm-Leach-Bliley Act.
Regulation P did not change with TRID, but many lenders still feel that TRID exposes them to additional liability under TILA if they provide real estate professionals with copies of the CD.
NAR estimated from a recent survey that about half of its members are experiencing problems with getting access to that form, especially when settlement is delayed.
About half of NAR members who have been given access to the CD reported that they found missing concessions and incorrect names or addresses, incorrect fees, commissions and taxes — all errors that are being cited as a reason why some investors are refusing to buy TRID loans from lenders.
“If real estate agents are able to review the CD with the borrower, they will help the process by aiding the consumer and finding technical errors that are more easily fixed by the lender before the loan is closed,” NAR’s letter stated. “NAR urges the CFPB to include language in the proposed rule stating that it is just as acceptable now as it was before Know Before You Owe for a lender to share the CD with third parties if the lender receives a consent form from the consumer as allowed under Regulation P.”
Changes in circumstance after the CD has been issued
Can changes be made to the CD once it has been sent to the consumer within certain timeframes?
According to NAR, lenders are all over the map when it comes to what constitutes a valid change in circumstance that can be added to the CD after it has been mailed to the borrower, so clarification on this issue is sorely needed.
For example, if a borrower requests a closing delay that requires a rate lock extension fee after the CD has been issued, some lenders are often absorbing the costs of the extension fee because they are not sure if they can revise a CD to add this fee once it has been sent to the consumer.
Although the CFPB addresses this issue in its Small Entity Compliance Guide, NAR feels that it only addresses a very specific window of time that occurs between the fourth and third business days from consummation.
“NAR urges the CFPB to clarify whether or not lenders can re-baseline costs on the CD after it has been mailed to the consumer to reflect a valid change in circumstance and give more information on the timeframes that are allowed for these changes,” NAR’s letter states.
Secondary market concerns
Finally, NAR touched on something that many across the real estate, mortgage and settlement services spectrum are worried about, but to their great frustration, the CFPB has not yet publicly addressed: The prevalence of errors on TRID loan documents, and the possible future impact on access to credit if investors reject these loans and lenders are forced to keep them in the portfolios for extended periods of time.
Some investors are refusing to buy loans with even minor errors, even if the error doesn’t negatively impact a consumer or lead to material liability. Currently, minor errors can be corrected post-consummation within 30 days, but some investors are taking 60 days or longer to review and return loans to lenders, NAR said.
Lenders then essentially have two choices: They can sell these loans on the “scratch and dent market” and take a loss, or they can keep them on warehouse lines for who knows how long.
“NAR is concerned that the increased cost of manufacturing these loans will ultimately trickle down to the consumer and impact access to credit, especially for lower-income and first-time homebuyers,” NAR’s letter stated.
The association recommended that the CFPB extend the post-consummation correction timeline to 180 days, as well as work with due diligence firms and investors to educate them about loan salability and how to address common technical errors.
