Call it a grace period. Call it an enforcement delay. Call it what you will, but the changes in TILA/RESPA know-before-you-owe rules are a major focus this summer for any credit union that does mortgage lending. The CFPB’s promise to go easy on the Aug. 1 deadline doesn’t change that.
Basically, the rule replaces the Good Faith Estimate and Truth-in-Lending Disclosure with a single loan estimate, and the HUD-1 Settlement Statement and final Truth-in-Lending Disclosure with a single closing disclosure, all bearing the acronym TRID.
Here is the CFPB web page comparing the new and old forms. All credit unions that do mortgage lending are affected in what’s being described as more than just a change in forms, but a change in processes that requires understanding the new reg and all its impacts from borrowers to back-office vendors.
The enforcement delay came about after nearly 250 members of Congress signed a letter sent to CFPB Director Richard Cordray on May 20 that noted August-October as particularly busy months for home sales and settlements. The letter said, “We therefore encourage the Bureau to announce and implement a ‘grace period’ for those seeking to comply in good faith from Aug. 1 through the end of 2015.” (Here is the full letter.)
In response, Cordray issued a letter on June 3 that said, in part: “I have spoken with our fellow regulators to clarify that our oversight of the implementation of the rule will be sensitive to the progress made by those entities that have squarely focused on making good-faith efforts to come into compliance with the rule on time.” (Here is the full letter.)
Cordray also clarified the three circumstances under which lenders would have to extend the three-day review period before closing. A Credit Union Times piece headlined “CFPB Clarifies TILA-RESPA Rule” provides more on that.
But don’t call it a “grace period.” “Contrary to how it’s been reported, the CFPB is not providing lenders a grace period on compliance,” says Scott Stucky, chief strategy officer at DocuTech, an Idaho-based provider of closing documents and disclosures to credit unions and other lenders.
“It just means that that if credit unions are showing a good-faith effort to be compliant when TRID goes into effect on Aug. 1, the CFPB will be ‘understanding’ for some unknown time frame," Stucky says.
To that point, there’s also a bipartisan effort in Congress to enshrine the grace period into law. Here’s a HousingWire article on that effort to mandate a “reasonable hold-harmless period” through the end of the year.
It just means that that if credit unions are showing a good-faith effort to be compliant when TRID goes into effect on Aug. 1, the CFPB will be ‘understanding’ for some unknown time frame.
That would be to forestall what some say could be calamity among housing lenders. “TILA/RESPA Storm About To Hit Mortgage Lenders” is how the Credit Union Journal portrays the situation, quoting stakeholders who say the new rule could wreak havoc.
So, What To Do?
“The bar on the principle of know-before-you-owe is being raised here,” says Jon Jeffreys, credit union consultant and managing partner at Callahan & Associates in Washington, DC. “If you look at what’s actually on the new forms, it really makes me wonder how much the average consumer is going to understand it. So our best advice is to make sure you understand it yourself, thoroughly, so you can explain it correctly to your members.”
Read Jon’s blog: “Help Members Know Before They Owe”
Getting the forms and the staff together are both projects underway at Heritage Federal Credit Union ($486.1M, Newburgh, IN). “As new forms are ready, Heritage has been testing them in our system to make sure everything works as anticipated,” says John Phipps, the Indiana credit union’s chief lending officer.
“We’ve also trained our staff to make sure they have the knowledge they need to understand the changes and the impact they will have on the process and on our members,” Phipps says.
Phipps says he doesn’t expect the grace period to have much effect at his shop. That’s not the case at a big North Carolina credit union. “The intent was to keep us from having to fully comply by Aug. 1, and in that regard, it could be a tremendous help,” says Rick Mullen, chief lending officer at Coastal Federal Credit Union ($2.5B, Raleigh, NC).
Mullen says the grace period, enforcement delay — or whatever you want to call it — means Coastal will not have to use manual workarounds to close first-lien residential mortgages or stop offering closed-end second mortgages while it gets the new forms put together and tested. That isn’t likely to happen by Aug. 1, Mullen and others say.
“With the grace period, we’ll probably be able to continue business as usual as long as we are making a good-faith effort to become fully compliant,” Mullen says. That means making sure their loan origination systems are up to date, title companies are coordinated with, and staff is trained.
Meanwhile, the chief lender at Alliant Credit Union ($8.3B, Chicago, IL) says it’s on track to meet the Aug. 1 deadline but views the TRID rules as a teaching moment and a reason to upgrade its technology.
“We’re carefully reviewing the steps of our origination processes and workflows relative to the new requirements,” says Jason Osterhage, senior vice president of lending at Alliant. “We’re especially focused on the service scripts our employees use and how we’re setting expectations for applicants and how we are communicating with realtors, builders, and title companies.”
Osterhage says the big credit union is also looking to use the changes to expand its use of electronic documents and signatures. “Staff training on the requirements of the new rules and our associated changes to process will be very important,” Osterhage says.
Indeed, CUNA Mutual Group experts say the CFPB move is nice but not an invitation to relax. “We strongly encourage credit unions to work diligently toward the Aug. 1 deadline, given that the grace period only applies directly to the regulators’ enforcement,” says Jon Bundy, the company’s regulatory compliance manager. “Questions remain regarding private litigation in the courts,” he says.
And it’s sweeping. “The burden that TRID has placed on credit unions and vendors is extensive,” Bundy says. “It’s difficult to compare it to any other regulatory change we’ve seen in the past 10 years because it requires so much coordination across the entire mortgage industry, from credit unions to loan origination systems to realtors to title companies.”
Next: Everyone Calm Down, But Everyone’s Affected »
Everyone Calm Down, But Everyone’s Affected
Others, while not saying it will be business as usual, are more bucolic about TRID and the enforcement delay.
“The CFPB grace period should not have much impact on credit unions,” says Bob Dorsa, president/CEO of the American Credit Union Mortgage Association. “Most of our members are familiar with the terms and the TRID issues.”
That said, there will be a shakeout period, Dorsa says, and the compliance costs remain to be seen. “It’s hard to calculate what the true costs will be and many expect the added costs to be passed on to borrowers,” the ACUMA president says. “And if interest rates rise coincidentally with the TRID implementation, borrowers may be shocked.”
Dorsa also says he still encounters credit unions that think they’re not affected because they’re under the $10 billion threshold for direct CFPB supervision.
“That’s obviously just not the case,” Dorsa says. He says the leading credit union mortgage lenders are “100% involved in this. They’re also counting on their suppliers and TPOs (third-party originators) to make the grade. If they don’t, I guess they’ll be on the lookout for a new TPO.”
Partners At Work
At one vendor, CU Companies, national sales manager Bruce Goetsch says credit union clients of the Minnesota-based mortgage services CUSO seem to be adapting to what’s coming.
“Our partners are saying it’s not as difficult as expected simply because loan systems are handling the majority of the changes,” Goetsch says. Goetsch and his colleague — CU Companies compliance director Ashley Holmes — both point to webinars as another way credit union managers are getting up to snuff
And Holmes advises this: “Visit the CFPB’s regulatory implementation page. It provides helpful tools and guides and webinars to help comply with the new requirements.”
But don’t call it a grace period. “What the CFPB announced is not a grace period,” Holmes says. It’s a promise to delay enforcement.
Visit the CFPB’s regulatory implementation page. It provides helpful tools and guides and webinars to help comply with the new requirements.
That’s so credit unions and other lenders can get the new forms ready, which may be more complicated than it might seem at first blush.
“Consolidating the four existing disclosures into two new documents doesn’t really sound that impactful until you read into the other surrounding requirements as it relates to the strict delivery of disclosures, rules around revisions, and changed circumstances,” says John Levy, executive vice president of Integrated Media Management, a New Jersey-based provider of electronic document management services.
He says he finds “most concerning” the changes in what data elements will be required and how that data is displayed to a member on the new disclosures. He says he believes a “great deal of credit unions” don’t fully understand the impact this can have on both first and home equity mortgages.
“This is a serious undertaking for most credit unions that don’t have extra resources waiting in the wings as large banks might have to implement a regulation of this magnitude,” Levy says.
IMM is working with other vendors such as Akcelerant, the Pennsylvania-based loan origination software provider, and CUNA Mutual to get their credit union clients ready for the change.
At Akcelerant, Larry Edgar-Smith, the company’s senior vice president for product evangelism, says the company has been working with IMM and CUNA Mutual and others to get ready regardless of grace periods.
“Frankly, while it was an interesting announcement, we always anticipated there would be some sort of a grace period. At the same time, we always planned to be ready in advance of the deadline,” Edgar-Smith says. “The grace period, while a nice safety net, really should not make a difference to us or our customers.”
The Bottom Line And The Big Picture
It remains to be seen how the CFPB will work with the NCUA and other regulators on TRID enforcement. Angela Cheek, vice president and counsel, product compliance, at California-based mortgage processor Ellie Mae, notes that although regulators retain examination and enforcement authority of federal consumer financial laws for institutions with assets of $10 billion or less, the Dodd-Frank Act allows the CFPB to include its examiners on a sampling basis of examinations performed by the other regulators to assess compliance with federal consumer financial laws.
"It is nice to hear that the CFPB has spoken with the prudential regulators to clarify this approach,” Cheek says, ”but the CFPB letter did not say these agencies agreed take the same approach. There have yet to be any similar announcements from any of the prudential regulators."
Chief lending officer Mike Nagl at Warren Federal Credit Union ($546.6M, Cheyenne, WY) also worries about the big picture the TILA/RESPA changes represent.
“While this implementation is significant,” he says, “the regulatory burden as a whole continues to mount and we recognize that it’s not going anywhere, particularly when you hear and read of the CFPB’s growing authority and the NCUA’s increasing staff levels — all while the number of credit unions continues to shrink.”
Growing compliance demands, the Wyoming credit union executive says, will continue to force smaller institutions to merge with larger partners. “All of this to protect our members? Doesn’t make sense to me,” Nagl says.
What’s Up At Wright-Patt
Tim Mislansky, chief lending officer at Wright-Patt Credit Union ($3.1B, Beavercreek, OH) and president of myCUmortgage, shares how his credit union is preparing for TRID.
“The implementation plan includes a number of aspects. They fall into people, process, and technology categories,” he says. “The process and the technology piece are probably the easiest. The people piece is the hardest because there are so many involved, including our staff, title companies, realtors and borrowers.”
Here’s what Mislansky says is going on at Wright-Patt:
“We’re working with our LOS provider on integrating the new forms and the associated data fields into our processes.”
“We’re reviewing our processes to ensure they consider the delivery of forms and we’re working to understand how the timing requirements will impact our ability to close loans in a timely manner.”
“We’re communicating with our title companies and several realtor groups to ensure they have understand the new regulation and how it will impact us and them and the borrower.”
“We’re developing talking points for staff to use with borrowers to explain the new forms and the new timing requirements.”