Dodd-Frank & the CFPB

Under a congressional mandate contained in the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 ("Dodd-Frank"), the CFPB was directed to integrate the TILA and RESPA disclosures. It was a long, arduous process that spanned a couple of years. In July 2012, the CFPB published its Proposed Rule and opened it for public comment. The Proposed Rule was based on the Dodd-Frank requirements as well as extensive consumer research and consumer outreach that the CFPB had conducted involving approximately 850 consumers. The publication of the Proposed Rule kicked off an intensive year of industry research and development, in anticipation of the Final Rule.

The upshot of the Proposed Rule was that the previous Good Faith Estimate of Settlement Costs for real estate-secured loans, and the "preliminary" Truth in Lending disclosure for dwelling-secured loans, was replaced by a single form: The three-page Loan Estimate. Like its now obsolete predecessors, the Loan Estimate form is designed to help consumers understand the key features, costs, and risks of the mortgage loan for which they are applying; it too must be provided to applicants no later than the third business day after they submit a loan application. It provides estimates of the costs of the proposed loan, and disclosures about the repayment terms, among other information.

The Proposed Rule also provided a single form, the five-page Closing Disclosure, to replace the previous HUD-1/HUD-1A Settlement Statement and the "final" TIL disclosure. The Closing Disclosure is designed to provide simple and straightforward disclosures about the terms of the consumer's loan, including payment and escrow account information, as well as detailed disclosures of the costs of the transaction. It is also designed to include disclosures about unique loan products, such as adjustable rate mortgages, balloon loans and some of the more exotic loan products that have been developed over the years. Even the traditional 4-Box TIL disclosure has been reworked and included in the form, although the Annual Percentage Rate has been downplayed a little, as that concept was often one of the most confusing things about the earlier disclosures.

What Does TRID Mean for Consumers?

The end result of the consolidation process is two disclosures that have been designed, developed and tested so that they are easy for consumers to understand. Only information that is relevant to the consumer's loan is allowed to appear on the forms. The blizzard of checkboxes and grids of settlement costs on the old forms have been replaced by succinct reader-friendly sections that convey only the relevant information.

That's great, you say, but aren't real estate mortgage loans sometimes rather complex transactions? How does a pair of simplified loan disclosures work for the full spectrum of real estate lending products?

The answer was that the CFPB decided to put all of the complications "under the hood," in the excruciatingly detailed regulations and instructions that determine what simplified information ultimately appears on the forms. All of the complicated work that goes into determining what information does or does not appear on the simplified disclosures now happens before the form is ever printed for the consumer. To illustrate, the Final Rule to implement the TRID disclosures, published in the Federal Register on Dec. 31, 2013,consisted of 636 triple-columned pages of explanation, regulations and model forms (including a total of 31 variations and examples of use of the two forms, 17 in English and 14 in Spanish) – all to describe one three-page form and one five-page form. The task of translating these regulations into software and integrating the documents into loan processing systems proved to be so arduous for the forms and loan processing industry that the original deadline of Aug. 1, 2015 (19 months after publication) had to be pushed back by two months, to Oct. 3, 2015.

What Does TRID Mean for Credit Unions?

This brings us back to the Aug. 11, 2017 Final Rule. Trying to wrap a simplified pair of disclosure forms around the full range of products of an industry as complex as residential mortgage lending, had not been solved the first time around. Consequently, the CFPB found it necessary to tweak the rules governing the accuracy tolerances for certain disclosures, as well as the rules for including certain information affecting housing finance agencies and non-profits. A few other fixes were thrown in for good measure. But this time, in recognition of the underlying complexity of the TRID disclosures, the CFPB has provided the industry over a year to implement the new requirements (which took a mere 138 pages to describe in the Federal Register).

The Aug. 11, 2017 Final Rule provides a clear illustration that TRID disclosure fixes are no longer just a matter of adjusting model forms. They now involve complex changes to numerous software and computer programs, all of which must be tested and retested before they can be implemented by lenders and furnished to consumers.

Picking the right business partners to satisfy the TRID disclosure requirements is more critical than ever, and a reliable document provider is every bit as important as finding a qualified loan processor. The two must work hand-in-hand to deliver your credit union the proper solutions that you need to stay on top of the changes that are inevitably coming down the line. The CFPB is still working behind the scenes to craft new disclosure rules for home equity lines of credit, and the disclosure requirements for typical closed-end consumer loan documents haven't been touched in years. If the TRID disclosure rollout tells us anything, we're in for an interesting ride!

Richard Gallagher is CEO at Oak Tree Business Systems, Inc. He can be contacted at 800-537-9598 or [email protected].