One of the greatest parts of my job is getting to talk with people about the challenges they face. Last week, for example, I was in a meeting with a group of mortgage lenders, and the big issue on their mind was the pending implementation of the CFPB’s Know Before You Owe disclosures, which combines the Truth in Lending Act and Real Estate Settlement Procedures Act disclosures. Click here to read more from the CFPB.
These new regulations go into effect on August 1, 2015, and are a big deal. Know Before You Owe changes not only disclosures but also major processes that directly affect members. Although credit unions were not the ones sending members confusing or unclear loan docs, the industry is once again required to pay for the sins of others. As such, credit unions will need to evolve their time lines and expectations to accommodate Know Before You Owe.
The more I learned about the new disclosures as I talked with the credit union lenders, the more the cynical side of me came out.
One of the new forms — the loan estimate form — has a section that breaks out the total loan costs like this:
(A) Origination costs (i.e., points, application fee, underwriting fee).
(B) Services you cannot shop for (i.e., appraisal fee, credit report fee, flood fees, tax fees).
(C) Services you can shop for (i.e., pet inspection fee, survey fee, title fees).
(D) Total loan costs (i.e., A+B+C).
The new forms might give some borrowers better perspective, but if the average consumer is like me, this one raised more questions than it clarified. For example, it's not clear to me why consumers can shop for certain services but not others, neither is why certain services fall into one category or the other. What defines each category?
I believe the new disclosures are going to prompt consumers to ask more questions of their real estate agents and originators, which will put more pressure on those entities. That might be a good thing, but is the system ready for it? More questions means more time demands on loan origination staff, who are already stretched thin at many credit unions. Helping members better understand their mortgages is undeniably a positive step, but credit unions might have to adjust their processes and cost structures to accommodate that.
So what’s the solution? I got to thinking, maybe the CFPB should give examples that help consumers better understand what the forms mean and how to use them in a practical sense.
Here are a couple of examples I came up with.
Movie Cost Detail
(A) Ticket Price ($10.75)
(B) Services You Cannot Shop For (soda, $7.50; popcorn, $5.00; candy, $2.00)
C. Services You Can Shop For (NONE, don't even think about bringing outside refreshments into the theater).
D. TOTAL MOVIE COSTS (A + B + C)
Flight Cost Detail
A. Ticket Price: $249.43
B. Services you cannot shop for (baggage fee, $40.00; seat assignment, $18.00)
C. Services you can shop for (overpriced airport food and beverages, $12.45)
D. TOTAL AIRPLANE TICKET COSTS (A + B + C)
Although I offer these examples in jest, this is a serious topic. The processes changes alone are likely going to extend closings to 45 to 60 days. That kind of delay will disappoint members, and the added information will likely lead to a number of confused members for the first few months of implementation at least.
I would think credit unions have an ally in real estate agents. Perhaps they are the best go-between to get the message out. I’m interested to learn what credit unions are thinking about in terms of how they’ll communicate with members about these changes?
Please offer your insight in the comment box below or email me at email@example.com.