Richard Horn
Legal PLLC

Consumer Finance Regulation Blog

TRID Secondary Market Issues and Challenges

December 24, 2015

Clients and Friends,

I’ve been meaning to write for a while, but as you can imagine, it’s been an extremely busy Fall.  I did want to take a moment though to write about some of the recent news about TRID, as many of you have been asking me for my thoughts about it.  I also wanted to let you know about the TRID technical correction rule that the CFPB just published last week.

The Technical Correction Rule.   The CFPB published last Thursday a technical final rule making certain corrections to provisions that were amended by TRID.  This rule does not actually make any changes to the TRID rule as it was issued by the CFPB in November 2013.  It turns out that some of the amendments in the final rule to the regulatory text and commentary of 1026.17, .18, .22, and Appendix D were codified in the CFR incorrectly.   It appears that the GPO inadvertently deleted several existing provisions of Regulation Z and omitted provisions of the final rule from the CFR.  The CFPB published the final rule only to fix these errors, stating it is, “clarifying how the TILA–RESPA Final Rule should have been codified in the CFR, and preventing incorrect codification in the 2016 hard copy edition of the CFR.”  This final rule does not make any changes to the final rule as it was issued.  It is effective Dec. 24, 2015.  The rule can be accessed here: https://federalregister.gov/a/2015-32463.

There are two things to consider with this technical correction final rule.  First, there is a question, which the CFPB does not answer, of whether the inadvertent deletion of the existing commentary and regulatory text has any effect on loans that were originated during the period of Oct. 3 through Dec. 23.  Some of these provisions were significant, such as the provisions providing for an APR tolerance under 1026.22(a)(5).  Second, it appears that the CFPB can dedicate the resources to issue a final rule amending TRID when it believes it is necessary.  The industry should view this as an opportunity to inform the CFPB about other issues under TRID that it believes need regulatory amendments.

TRID Frustrations.  As I’m sure you’ve been reading and hearing, significant concerns have been raised about TRID disclosure violations and their effects on the sale of loans in the secondary market.  Many lenders have been publicly expressing frustration with TRID in news articles.

And as I’m sure you’ve seen by now, Moody’s recently reported that it found TRID disclosure errors in 90% of a sample of loans.  The report said that many of these violations were “technical” in nature, such as incorrect spelling or the absence of a required hyphen, but it still raises significant concerns about the potential liability for investors from these violations.  Investors are kicking a lot of loans, many for minor, technical violations.  They are concerned that TILA is unforgiving in its liability scheme, and even technical violations can lead to assignee liability.

I’ve also been hearing about many other issues.  For example, many lenders have reportedly left construction-to-permanent lending because they do not know how to complete the disclosures for the product.  Also, lenders have called me complaining that their software still has programming errors, that there are difficulties understanding how the Calculating Cash to Close table appears for FHA and certain other products, about difficulties obtaining simultaneous issuance title insurance estimates, and misunderstandings about the settlement agent’s responsibilities to provide the seller’s CD under TRID.

These are real frustrations, and because they implicate the secondary market, they present real risks to consumers’ access to credit.

No CFPB Grace Period.  At the same time, it does not sound like the CFPB will be as “sensitive” as we would have hoped.  Director Cordray likened these frustrations to Y2K, and basically said it was much ado about nothing.  And the Deputy Assistant Director for originations in the CFPB’s Office of Supervision, Calvin Hagins, is reported to have stated at an industry conference that the CFPB will be examining for TRID compliance in 2016 and that, “there is no grace period from the bureau.”  Furthermore, the CFPB’s Fall Supervisory Highlights (http://www.consumerfinance.gov/reports/supervisory-highlights-fall-2015/) noted several GFE and HUD-1 tolerance and accuracy errors, which I believe is a signal that the CFPB will be examining for these errors under TRID as well.

And the CFPB does not appear to understand the potential implications the TRID rule has for the secondary market and the nation’s residential housing market.  The CFPB’s good faith period does nothing to limit the potential civil liability under the rule for lenders and investors during this period.

The Industry Will Adjust.   The challenges that TRID presents are significant.  As one very smart person said even before the final rule was issued, this rule is a “sea change.”  This rule changes how things have been done for decades.  If anyone (including the CFPB) thought this would be easy, they severely miscalculated.  The rule represents a lot of change for the entire industry, including the secondary market.  At the same time, the statutory liability for the disclosure requirements has been meshed, resulting in uncertainties regarding the repercussions of these TRID violations and the cures that are available.

But I believe the industry will adjust to TRID.  There are lenders, title companies, and vendors that have put the necessary time and resources into this sea change and they are doing quite well.  For example, I’ve assisted a number of lenders with construction-to-permanent lending under TRID, allowing them to continue offering the product.  And many reports also state that some lenders have had success with TRID, and that technical violations are expected to diminish over time as programming fixes are implemented.

What should you be thinking about as we adjust to TRID?

Liability and Cure Issues.  Start thinking about the potential liability that exists for violations you’ve identified, and what cures are available.  The questions you will want to answer are whether a violation involves a material disclosure for rescission purposes, whether it has potential civil liability and assignee liability under TILA, and if so, if statutory damages or only actual damages available.  And start talking to your investors about what cures they may accept.  I think this will be one of the most important areas of TRID analysis in the coming months.

Prepare to Show Good Faith Efforts.  Start preparing now to demonstrate to your regulator your good faith efforts to implement and comply with TRID.  Although Mr. Hagins stated there will be no “grace period,” I believe that good faith efforts will still be taken into account in an exam, especially with respect to technical disclosure errors.  This means, among other things, ensuring you have updated policies and procedures and have conducted staff training.

And if you identify errors in your disclosures, think about how you are dealing with them.  If an error was caused by an LOS software glitch or another third party, document that fact.  Also, document discussions with the vendor or third party to show you made a good faith effort to prevent the error from occurring again.  And if software errors persist, think about how you will deal with that problem.  The CFPB’s April 2012 Service Provider Bulletin describes how the CFPB expects lenders to take “prompt action” to address identified problems with service providers.  And considering Director Cordray’s comments expressing concern about vendors and TRID at MBA’s Annual Convention this year, this may be an area that is of concern to them.

Grey Areas in the Rule.  There is no rule that can answer every single question, especially given the infinite variability of credit and real estate transactions.  In addition, the CFPB has not been forthcoming with official guidance during the implementation period, or after the effective date.  Therefore, it is not surprising that the industry is encountering grey areas and questions in the rule.  You should think carefully about the potential liability that is implicated and your course of action when these issues arise.

The CFPB does have an informal guidance function in which a staff person will provide informal, non-binding guidance over the phone.  But you may not want to contact the CFPB on your own for fear that you might self-identify that you’ve been out of compliance (remember, no grace period).  Instead, it may be best to contact the CFPB through counsel, which can do so without identifying you.  In addition, given the non-binding nature and the long wait times that may be involved, this may not be the most appropriate course of action.  Also, you may want to inquire with your investors or any of their published materials to ensure that they will accept your interpretation.

Conclusion.  In the end, we will adapt to this change.  Industry will find its new workflows and best practices.  Like many in the industry, I recognize the potential benefits of this rule to the public.

Unfortunately, if the CFPB does not provide adequate guidance or make necessary amendments, it only increases the costs for industry.  I am hopeful the CFPB will issue additional written, formal guidance or amendments to the rule’s commentary to address some of the most frequently asked questions about the rule, to give industry the clear rules of the road it needs.  I also believe industry should remain vigilant in asking the CFPB or Congress to implement some modification of the liability under the rule to allow for a true good faith or hold harmless period.

In the meantime, I am available to provide assistance in navigating the rough waters ahead.  All questions are good questions when it comes to TRID.  If you need assistance analyzing the potential liability or cures that are available for violations that have occurred, or help in understanding a regulatory requirement, please do not hesitate to reach out.

If I don’t talk to you before, please have a wonderful holiday season!

HMDA Final Rule Issued Today

October 16, 2015

Clients and Friends,

As you may have seen, the CFPB issued the final HMDA rule today.   http://www.consumerfinance.gov/newsroom/cfpb-finalizes-rule-to-improve-information-about-access-to-credit-in-the-mortgage-market/   I did very briefly review it tonight (it’s only 796 pages, a lightweight!).  Here are my initial impressions.

First, to issue this right after TRID becomes effective is really piling on.  The industry has yet to close loans under TRID, and that’s when the real TRID issues will come to light.  And the CFPB has acknowledged that TRID is still an ongoing implementation effort in its statement providing an informal grace period.  But the CFPB apparently expects lenders to start understanding the new HMDA requirements on top of tackling the lingering and new TRID issues.  One bright side is that the effective date is better than the industry was expecting and feared.  Data collection becomes effective Jan. 1, 2018, and reporting on Jan. 1, 2019.  But that means testing will need to happen in 2017. And it is unlikely the CFPB will delay the effective date of HMDA.  Considering the expected volume of ongoing work to adjust to TRID, it may be a good idea to at least start thinking about HMDA implementation, such as project staffing and timelines, to be ready to test in 2017.

Second, the final rule amends the scope of institutions subject to HMDA, expending its coverage of nondepository institutions .  It amends the current coverage tests to establish a minimum 25-loan test for closed-end loans and a 100-loan test for open-end loans for the preceding two calendar years, which applies both depository and nondepository institutions.  And the rule includes some other burdensome new requirements, such as quarterly reporting for large volume institutions and many new datapoints.

Third, the final rule does align some datapoints with TRID, such as by changing the proposed “points and fees” datapoint to the “total loan costs” under TRID, and requiring the general “lender credits” under TRID’s Closing Disclosure.  But there were some potential alignments of datapoints they left on the table, such as the alignment of the unique loan identifier with the TRID loan identification number.  In addition, the pricing data the CFPB included from TRID is confusing, such as only requiring reporting of the general Lender Credits line and not specific lender credits, which may affect how your loans appear.

Fourth, the privacy concerns are still concerning.  The CFPB basically punted the privacy issue and gave some soft statements about taking the input of the industry into a future balancing test for publicly reported data.  But they brushed aside concerns about data breaches and hacks of the government and lenders.  This is surprising considering the high profile breaches of other government agencies, such IRS and OPM.

Fifth, there are some improvements from the proposal with respect to certain datapoints and coverage.  The fact that the CFPB did not finalize some suspect data points, like the risk adjusted pre-discounted interest rate, is a positive for industry.   Also, the final rule narrows the coverage of commercial loans from the proposal, which is also a positive result.

Again, these are just my initial impressions from a very brief review.  I plan to work on a summary in the next week or so. Please let me know if you have any questions.

TRID Week 1 Developments

October 8, 2015

Clients and Friends,

I hope TRID week one is going well!  I wanted you to know about two recent TRID developments:

  1. Fannie Mae and Freddie Mac are providing a temporary transition period for TRID, similar to the CFPB.  The GSEs released similar letters on October 6, stating that they will not review loans for technical compliance with TRID until further announcement.  Please note that they will check whether the correct forms were used in connection with the loan.  In the letter, the GSEs stated that they will only exercise contractual remedies for noncompliance with TRID, including repurchase, in two circumstances: (1) the required form is not used, or (2) a particular provision would impair enforcement of the note or result in assignee liability, and a court, regulatory agency, or other authoritative body has determined that the practice violates TRID.
  2. The House of Representatives yesterday passed H.R. 3192, the Homebuyers Assistance Act, which provides for a statutory “hold harmless” period for TRID.  The bill would prevent enforcement or civil liability for noncompliance with TRID for loans originated before February 1, 2016, if acting in good faith to comply.  The vote was 303 to 121.  However, the day before, on October 6, the White House announced that the President’s senior advisers would recommend that he veto the bill if it passed.  The White House’s statement described the bill as an “unnecessary delay…of important consumer protections designed to eradicate opaque lending…and undercut the Nation’s financial stability.”  It remains to be seen whether the Senate will have a veto-proof majority.  But remember that back in 2012 the President held the Loan Estimate up at an event focusing on housing, stating, “so this is what a mortgage form should look like….  Simple, not complicated.  Informative, not confusing.  Terms are clear.  Fees are transparent.”  It would appear that the President is likely to follow through with this veto threat.

And I’ll briefly mention another topic that has been in the news.  The CFPB announced yesterday that it is considering a proposal to ban arbitration clauses that prevent consumers from class action lawsuits from contracts for consumer financial products and services.  For other arbitration clauses that remain permissible, the proposal would require the reporting to the CFPB of the arbitration claims filed and the awards, so the CFPB can monitor them for fairness, and publicly post them on its website.  This kicks off the SBREFA panel process for this proposed rulemaking, which the CFPB must complete before it issues a proposed rule.  Note that the Dodd-Frank Act already prohibited arbitration agreements in residential mortgage loan notes, which is implemented in Regulation Z.  Accordingly, the CFPB is not considering including an explicit exemption for residential mortgage lending from its proposal.

By the way, I’m speaking at ALTA’s Annual Convention today, in the TRID Solution Center.  Please stop by and say hello!

TRID Becomes Effective

October 3, 2015

Clients and Friends,

October 3 is finally upon us.  Happy TRID Day!  Someone recently said to me, this is the only “holiday” where you have to go to work.  If you are at work, I hope you are having an easy day. I am sure you are all exhausted from your implementation efforts.

After starting on this rule back on January 3, 2011 (with a completely different cast than the one that finished it) and seeing it through every stage of its development, including leading the final rule, it’s hard to believe the effective date is here.  Someone else recently said to me, you have made disclosure simpler, but more complex.  Although I believe this rule will benefit consumers and help them understand their loans, this is an incredibly complex rule.  And no rule can predict every factual scenario that can arise, especially given the infinite variability of credit and real estate transactions.

Please know that I stand ready to provide assistance in these early days of TRID.  Although TRID is now effective, this is only the beginning.  There will be new questions that come up that we could not have even predicted.  It is also a time to start thinking about the efficiencies you can find in this more complex (but simpler!) disclosure regime.  For example, the closing process is one area where the workflows will be exceedingly more difficult.  To attain customer satisfaction and reduce the risk of consumer complaints, being able to close on time and efficiently for the consumer will be essential.  So, this may be an area deserving attention.

I also want to briefly update you on some TRID issues and materials the CFPB has recently released, and point out some highlights.

CFPB Good Faith Period.  Cordray was on the Hill on Sept. 29 and was asked about providing a more formal good faith period than the informal “sensitivity” period that the CFPB announced a few months ago.  Cordray hinted about an upcoming announcement about a good faith period, but his statement indicated that it would be informal.  For example, he stated at one point, “I don’t think it’s appropriate for me to say ‘I won’t enforce the law’ when my job is to enforce the law, but I think what I have said to them is that we will be diagnostic, not punitive, during that early period.”

The CFPB announced on October 2 on its webpage that it has sent letters to trade associations acknowledging that the CFPB will provide an informal “grace period.”  You can find the press release here.  http://www.consumerfinance.gov/newsroom/cfpb-sends-industry-letter-on-know-before-you-owe-mortgage-disclosure-rule-compliance/  The letter also indicates that the other FFIEC agencies will follow the same approach.  The press release states that during initial exams, the CFPB will examine, “compliance management system and overall efforts to come into compliance, recognizing the scope and scale of changes necessary for each supervised institution to achieve effective compliance.”  The announcement continues, stating that the CFPB expects industry to make “good faith efforts to comply with the rule’s requirements in a timely manner.”  The announcement states that examiners will consider, “the institution’s implementation plan, including actions taken to update policies, procedures, and processes; its training of appropriate staff; and, its handling of early technical problems or other implementation challenges.”  This confirms and expands on the CFPB’s previous statements about an informal grace period.  This is a positive development for the industry.

But while this announcement does provide some relief with respect to administrative enforcement, it does not eliminate the substantial risk of civil and assignee liability under the rule for lenders and the secondary market.  The TRID rule places a greater amount of information and requirements under TILA statutory authority, including requirements that were previously only subject to RESPA administrative authority under the previous rule.  And the forms still contain the TILA material disclosures, which affect rescission rights.  This brings with it the threat of borrower lawsuits based on disclosure violations and buybacks, and this risk continues even if the CFPB will only examine for CMS and good faith compliance.  So, please keep the foot on the gas, because good faith efforts are not enough to avoid a lawsuit or a buyback.

CFPB Guidance.  I have heard many complain about the fact that the CFPB has placed far fewer resources on TRID guidance than is really appropriate for a rule of this size and effect on the market.  This has unfortunately resulted in excessively long wait times for responses to regulatory inquiries.  And many have complained that when the response finally arrives, the CFPB staff person knows less about the rule or the market than they do, and cannot provide a definitive answer.  Start thinking about how you will handle issues that arise for a loan in the pipeline or worse, at the closing table.  You may not be able to wait a few weeks for a vague response from the CFPB.

This is why I believe it is important to continue pressing the CFPB for more definitive, written guidance on certain aspects of the rule, such as the “black hole” and construction-to-permanent lending, and I look forward to working together on that front.

Consumer Materials.  It is useful to review the CFPB’s consumer materials about the rule, to understand the CFPB’s objectives for the rule and how consumers might understand their new rights and the lender’s obligations.  The CFPB updated its Know Before You Owe webpage to focus on the TRID rule.  The page includes a consumer-oriented video about the new rule.  http://www.consumerfinance.gov/know-before-you-owe/.

Remember those website links on the bottom of page 1 of the Loan Estimate and on page 5 of the Closing Disclosure?  The CFPB updated those pages as well.  The links take consumers to disclosure-specific pages in its Owning a Home suite of pages.  Yes, this is the same Owning a Home that contains their poorly conceived and executed “Rate Checker Tool,” or as it is officially known, “Explore interest rates.”

The Loan Estimate page is: http://www.consumerfinance.gov/owning-a-home/mortgage-estimate/.  The Closing Disclosure page is: www.consumerfinance.gov/owning-a-home/mortgage-closing/.  These pages include “interactive” samples of the Loan Estimate and Closing Disclosure, with clickable short explanations of different parts of the disclosures.  Interestingly, the CFPB’s interactive disclosures do not explain each part of the disclosure, including the Principal and Interest payment or the components of the Projected Payments table.  The unexplained areas may be sources of questions from consumers.

The Owning a Home pages are also updated to reflect the new rules, which are here: http://www.consumerfinance.gov/owning-a-home/.  Some of the highlights include:

  • Information about the new definition of “application.”  The page states, “you just need to provide six key pieces of information to begin your loan application,” and listing the six items in the definition of “application.”
  • Encouragement for consumers to shop between lenders, stating, “your best bargaining chip is usually having Loan Estimates from other lenders in hand…Getting Loan Estimates from multiple lenders increases your bargaining power.”
  • Telling consumers to “shop for title insurance and other closing services,” and that, “research suggests that borrowers who shop around for closing services could save as much as $500 on title services alone.”  The page continues, “that’s $500 that you can put toward new paint, furniture, and other improvements to make your new home feel more your own.”  The page also explains that “state laws may require different title insurance disclosures,” but that the totals between the disclosures should match.
  • Information about submitting consumer complaints because of cost increases.  The page describes some possible reasons why cost estimates may increase, including a description of “changed circumstances.”  Notably, the page also tells consumers to submit complaints if they receive a revised disclosure with invalid cost increases.  The page states, “if you think your lender has revised your Loan Estimate for a reason that’s not valid, call your lender and ask them to explain. You can also submit a complaint to the CFPB.”
  • Please let me know if you have any questions.
  • Supervision Materials.  Finally, the CFPB’s Supervision staff updated its Readiness Guide and Supervision and Examination Manual to reflect TRID’s October 3 effective date.  These can be found here: www.consumerfinance.gov/guidance and http://www.consumerfinance.gov/guidance/supervision/manual/.   The examination manual for TRID essentially is merely a summary of the rule, which does not contain much information about the disclosures themselves.  But for those of you still uneasy about rebaselining using the Closing Disclosure, notably, the TILA exam procedures acknowledge this ability on page 43.

Please let me know if you have any questions.

CFPB Issues Final Rule Delaying TRID to October 3

July 21, 2015

Clients and Friends,

I’m writing to inform you that the CFPB this afternoon issued the final rule delaying the TRID effective date to October 3, 2015.  Please find the link to the blog post announcing the final rule here: http://www.consumerfinance.gov/blog/the-know-before-you-owe-mortgage-rule-will-take-effect-october-3-2015/.  The press release is available here:  http://www.consumerfinance.gov/newsroom/cfpb-finalizes-two-month-extension-of-know-before-you-owe-effective-date/.

I plan to review the final rule and to follow up with any important information.  But I wanted you to know about the delay to October 3, 2015 as soon as possible.

Please let me know if you have any questions.

Director Cordray Testifies about TRID on Capitol Hill and the CFPB’s eClosing Forum

July 20, 2015

Clients and Friends,

Given the timing of this email on a Monday morning, let’s call this email my “bagel briefing.”  And in this bagel briefing, there are two events from last week that I wanted to highlight for you: CFPB Director Cordray’s Senate Banking Committee testimony on TRID, and the CFPB’s announcement of an eClosing Forum.

 

Director Cordray’s Testimony on TRID

Last week, on Wednesday, July 15, CFPB Director Cordray testified in front of the Senate Banking Committee at its hearing on the CFPB’s Semi-Annual Report to Congress. TRID came up a few times.  The testimony during the question and answer portion touched upon the rule’s effective date, the requested “good faith” period, and the length of the rule and disclosures.  Below is a summary, with some key takeaways.

Cordray faced a question about the CFPB’s response to a letter from over 200 members of Congress requesting a “hold harmless” period for TRID.  Cordray defended the original TRID effective date, stating that the CFPB “finalized the rule in November of 2013” providing “a 21-month implementation date, a long implementation date in response to what we heard from industry.”  He sounded upset as he stated despite the “long” implementation period, industry was not entirely ready for August 1, 2015.  “Nonetheless, as we get toward the end of it, some people aren’t ready,” he said.  He then noted the CFPB’s proposed delay, stating that it was evidence of Congressional oversight of the CFPB, before noting that it was caused by the CFPB’s “administrative error.”

Regarding the CFPB’s “administrative error,” Cordray stated that the CFPB had to, “in the end…due to an error on our part…back up the implementation date further out of the summer sale season.”  But he said that because of feedback, the CFPB is considering moving the effective date back to October.  He suggested that, based on the CFPB’s experience from implementation of the Title XIV rules, industry would find it inconvenient to move the date further out to January, because of other end-of-year systems work.

Cordray also discussed how the CFPB would initially approach supervision for compliance with TRID.  He stated that the CFPB has “worked with the other agencies to get an agreement, which we have, that the early examination of this will be diagnostic and corrective.”  He stated that “for the first period, which may last many months,” they would not look to be “punitive.”

Director Cordray was also asked about the length of the integrated disclosures.  He responded that, “the rule that actually implemented these forms is lengthy.  I wish it weren’t, but it is lengthy.”  He continued discussing the disclosures, stating that they were not the one-page disclosures that Senator Warren had wanted, stating that “we’re at five and three pages…it is the executive summary of the whole transaction.”  He defended the length, stating that the CFPB conducted consumer testing and that the forms are “much easier, and more accessible, and more understandable,” and that, “these are not lengthy forms.”  Interestingly, he also stated that, “we’re looking to try and do electronic closings and push the industry in that direction, which they want to go anyway, so that a lot of paper gets taken off and you can really focus on the key forms here.”

There are a few key takeaways here.  Regarding the CFPB’s proposal to delay the effective date, it appears unlikely that the TRID rule will be delayed until January, as some commenters to the proposal requested.  Cordray’s statements indicate that some in the industry have successfully convinced the CFPB that a January effective date would be disruptive to other operations.  Also, Cordray appears to believe still that the implementation period was “long,” and to fault the industry for not being ready, so he is unlikely to push the date back much further than the proposed October 3 effective date.

Significantly, Cordray’s statements provided more specificity regarding the CFPB’s announced “good faith” period.  Cordray’s statement that during this period, examinations will be “diagnostic and corrective,” rather than “punitive,” provides more information.  But, although Cordray skillfully credited the delayed effective date to Congressional oversight, it is still quite apparent that his “good faith” period does not provide industry with the “hold harmless” period Congress had actually requested.  While his reference to “punitive” likely means the CFPB will not seek civil money penalties, “corrective action” could include all of the other tools of the CFPB’s trade.  For example, this could still leave the door open to enforcement actions ordering restitution to consumers.  It would be unlike the CFPB not to seek redress for consumers, a UDAAP claim, and a strongly worded press release, if it viewed consumers as having been harmed.  Even without a civil money penalty, a TRID violation could be costly and result in reputational risk.

Director Cordray also indicated that the CFPB has obtained agreements with other “agencies” to follow this same approach, which is positive.  However, he did not specify which agencies.  Was he referring to the federal banking agencies, or state regulators that have the authority to enforce TRID under state law?  Hopefully the CFPB will address this with more specificity at some point, perhaps in the delay final rule.

And although Cordray stated this “sensitive” period could last for “many months,” that sounded more like he was telling a fairy tale than describing a “good faith” period that could affect the operations of U.S. mortgage market.  It would be more helpful to have a fixed, defined period.  But, it appears to me that the CFPB may want to retain discretion and flexibility with respect to the length of the period, so that they can make adjustments based on what they’re seeing in examinations.

Forum on eClosing

The CFPB announced last week a “Know Before You Owe Forum on eClosing,” which will take place on Wednesday, August 5 at 1 p.m. EDT.  The forum will focus on the “Know Before You Owe initiative on eClosing.”  It will “feature remarks from Director Richard Cordray, as well as a panel discussion with consumer groups, industry representatives, and members of the public.”  It is likely that the CFPB will announce the results (or at least some) of its eClosing Pilot Project.

Notably, the date of this forum, which must have been planned well in advance of the proposed TRID delay, would have coincided with the original TRID effective date.  This timing, and Director Cordray’s testimony on the hill about looking to “push the industry” in the direction of electronic closings, shows the CFPB’s very strong interest in electronic closings.  And you may remember that the CFPB also focused on electronic closings in its field hearing back in November 2013 that announced the CFPB’s issuance of TRID.  In that field hearing, the CFPB also announced its work on electronic closings.  All of this indicates that the CFPB likely views TRID as only a step towards a larger goal, electronic closings.  It will be interesting to see if Cordray provides any information during this forum about how, and when, he plans to “push” the industry towards electronic closings, especially after such an arduous implementation of TRID.

Please let me know if you have any questions, or if you’d like to discuss.

CFPB Issues TRID Delay Proposed Rule

June 25, 2015

Clients and Friends,

I am emailing to inform you that the CFPB issued its proposed rule to delay the effective date of the TILA-RESPA Integrated Disclosure (TRID) rule on its website yesterday.  The CFPB proposed to delay TRID’s effective date to October 3, 2015, but it also specifically sought comment on a shorter delay to August 15, 2015.  The scope of the proposal is limited to the rule’s effective date.  Comments are due July 7, 2015.

Summary of the Proposal

The CFPB acknowledged in the proposal that, because of its administrative error, the rule cannot take effect until August 15, 2015.  The CFPB explained that it neglected to file a report required under the Congressional Review Act (CRA).  It should have submitted this report to Congress and the Government Accountability Office at least 60 days prior to the original August 1, 2015 effective date, but it did not.  The CFPB discovered its error and then submitted the report on June 16.  Under the CRA, TRID cannot take effect until 60 days after this submission, and that is why the earliest possible effective date is now August 15.

The CFPB is seeking comment on a two-month delay to October 3.  It stated that it decided to seek comment on a longer delay than August 15 for two reasons.  First, it was concerned that a mid-August effective date could pose operational challenges.  Second, it learned of delays in software updates from technology vendors, which resulted in industry having a limited amount of time for testing.  The CFPB expressed concern that these issues could pose risks to the smooth implementation of the rule.  Also, it moved from the October 1 date in its recent announcement to October 3, because it decided to select a Saturday effective date.  The CFPB stated it believed a Saturday would be consistent with the original Saturday, August 1 effective date, and that it would be easier for industry to launch the new software systems over the weekend.

But, as noted above, the CFPB is considering finalizing the minimum two-week delay.  And it is also unlikely to finalize a delay past October 3.  The CFPB specifically sought comment on “the prospect of allowing the new rules to take effect on [August 15, 2015].”  It stated that the rule’s “earliest practically feasible implementation remains essential….”  The CFPB also stated that a delay past October 3 would impose “unnecessary costs” on those in industry that have worked to implement the rule on time.  It also stated that a longer delay would be inconsistent with its intent to benefit consumers.

My Sage Advice

You may recall that in my email after the CFPB’s announcement, I advised that we should keep our foot on the gas, because the CFPB can finalize an effective date earlier than October 1.  Considering the CFPB is specifically seeking comment on an August 15 effective date, I think it would be prudent to keep the train on schedule and the crew on board (apologies for using another transportation analogy).  It may be a good idea to hold off on project planning based on the October 3 date just yet.

Also, I recommend submitting a comment letter.  You may think that your letter won’t make a difference, or maybe that it won’t even be read.  But I can tell you from experience that a real person at the CFPB will read your comment letter and it will be considered.  The CFPB would benefit from the unique perspective of your company or organization on this important issue.

On a final note, the CFPB’s other recent announcement regarding it being “sensitive” in its oversight to “good-faith efforts” to comply with TRID is still an open issue.  What does “good-faith efforts” mean?  How long will Cordray remain “sensitive?”  Is Cordray going to group therapy with the other regulators?  These are questions that I hope the CFPB will answer as it works on how to ensure an efficient and smooth transition to TRID.  And given their relation to the implementation of TRID, these are valid issues to raise in a comment letter on the delay issue.

Please let me know if you would like any assistance with drafting a comment letter, or if you have any questions.

CFPB Proposes TRID Delay

June 18, 2015

Clients and Friends,

You may have already seen this, but I want to make sure you know that the CFPB has announced a proposed rule to delay the effective date of TRID to October 1, 2015.  They stated that their reasons for this delay were an administrative error that would have, at a minimum, delayed the effective date by two weeks, and their desire to push back the effective date past the busy closing months of August and September.  This is great news for the industry, which has lobbied for a delay, as it gives more breathing room to conduct testing, training, and tie up the loose ends before the effective date.

But don’t take your foot off the gas just yet.  This is only a proposed delay, which means it can change before it’s final.  Although I expect the two months to be finalized, it is possible that the CFPB will finalize a shorter time period.  The minimum delay based on the administrative error is only two weeks.  And I would expect the consumer advocacy groups to weigh in strongly on this proposal.  And even if it is delayed by two months, the two months will fly by very quickly.

The proposed rue has not yet been posted, though I am keeping an eye out for it.  Here is the link to the press release.  http://www.consumerfinance.gov/newsroom/statement-by-cfpb-director-richard-cordray-on-know-before-you-owe-mortgage-disclosure-rule/

Also, many of you have asked me incredulously, “what did you do wrong?!”  I thank you for your unwillingness to believe that I could have caused this error.  I have heard that this error was a delay in filing a report to Congress, which happened after the effective date.  So, no, I did not cause this error.  Although I suppose that this means you won’t be thanking me for causing the delay with a bottle of wine or champagne, I am happy that you can continue your confidence in my ability to finalize 1,900 page rules without administrative errors.

Please let me know if you have any questions.

CFPB’s TRID “Good Faith” Announcement

June 3, 2015

Clients and friends,

I wanted you to know that the CFPB announced this afternoon that they will be “sensitive” in their oversight to “good-faith efforts” to comply with TRID.  This announcement comes in response to the significant amount of pressure the industry placed on the CFPB on this issue, including a letter from 200+ members of Congress asking for a grace period until the end of 2015.  The announcement also describes the rule for providing an additional three-business day waiting period for the Closing Disclosure.  This announcement is available at: http://www.consumerfinance.gov/blog/know-before-you-owe-youll-get-3-days-to-review-your-mortgage-closing-documents/

While it is helpful that the CFPB will take good faith efforts to comply with the rule into account, there are two issues I want to point out.  First, the announcement does not provide any certainty regarding the time period it will apply to, or what they consider “good faith.”  Reliance on the CFPB’s “sensitivity” and a standard they don’t define may not be prudent.  In addition, there are other regulatory agencies that supervise for compliance with TRID.  It’s nice that the CFPB has spoken with them to “clarify this approach,” but the CFPB does not say these agencies will take the same approach.  There have yet to be any similar announcements from other agencies.

Second, the rule will still go into effect on August 1.  Without a delay of the effective date, there is still the potential of borrower lawsuits, including class actions, starting on August 1.  As I’m sure you’ve heard me discuss many times, the TRID rule greatly expands the potential civil liability for the disclosures.  TILA has civil and assignee liability for many of its disclosure provisions, while RESPA does not.  But the TRID rule relies on and implements TILA for most of its content and regulatory requirements, including those that were previously only required under RESPA authority.  This means that requirements such as the tolerances and the disclosure of settlement charges may now be the subject of borrower lawsuits under TILA.

In sum, even though this CFPB announcement is helpful, the rule will still go into effect on August 1.  And this means that compliance is still vitally important on August 1.

I am happy to discuss if you have any questions or concerns.