Is the CFPB breaking its own rules?

by MPA19 Jan 2015
As everyone in the mortgage industry knows by now, the implementation of the Consumer Financial Protection Bureau’s (CFPB) TILA-RESPA Integrated Disclosure rule is only a few months away. And while, the bureau states the new rule will simplify and enhance disclosure forms for mortgage transactions, not everyone agrees.

The American Land Title Association (ALTA) said it is concerned with the CFPB’s new Closing Disclosure, which goes into effect Aug. 1, 2015, and replaces the current HUD-1 Settlement Statement.

During a recent speech at the Brookings Institution, CFPB Director Richard Cordray said the new integrated mortgage disclosures will help consumers become better and more informed shoppers. (Click here to read Cordray’s prepared remarks.)

However, ALTA said it believes the Closing Disclosure misleads consumers about the actual price consumers will pay for title insurance. ALTA said it is urging the CFPB to take swift action to ensure consumers receive accurate information about their mortgage costs, including title insurance premiums and settlement services.

“Unfortunately, the current Know Before You Owe forms will create confusion at the closing table for many consumers,” Michelle Korsmo, ALTA’s chief executive officer, said. “In nearly half of the country, title companies are required by state law to charge title insurance premiums and discounts in a manner different than the bureau would have them disclose those fees to the consumer.”

Through regulation or rate filing, title companies in about half the states offer discounts on the loan policy when an owner’s policy is simultaneously purchased. Despite the common practice, the rule prohibits settlement agents or lenders from disclosing the discounted simultaneous issue price for the lender’s title insurance policy on the Loan Estimate and Closing Disclosure forms, according to ALTA.

ALTA said it believes that the rule’s requirement that the Closing Disclosure provide inaccurate charges for title insurance premiums is inconsistent with state law or regulation in 21 states: Alabama, Alaska, Arizona, California, Colorado, Florida, Idaho, Kansas, Michigan, Missouri, Montana, Nebraska, Nevada, New Mexico, New York, Ohio, Oregon, Texas, Utah, Washington, Wisconsin and Wyoming.

Additionally, the bureau’s method for disclosure of title fees will also cause confusion in the 31 states where the seller pays or is likely to pay for owner’s title insurance on behalf of the consumer.

This disclosure requirement will also cause consumers to think they need more cash to close, which will result in money being refunded, ALTA stated. Title and settlement agents will have to provide additional disclosure forms to consumers at closing to show the actual title insurance costs and to prove compliance with state law governing industry-filed rates.

“ALTA supports a cleaner real estate transaction but not at the expense of consumers understanding of their actual mortgage costs,” the association said in a statement.
“We agree with Director Cordray that an educated consumer is a more confident and empowered consumer,” Korsmo said. “Our economy can speed up its recovery if we provide more stability, growth and affordability in the mortgage market. We will continue to work with the CFPB and our industry partners toward commonsense solutions that decrease consumer uncertainty and bring demand back into housing market.”

The TILA-RESPA Integrated Disclosure rule includes two new forms for mortgage applications received on or after Aug. 1, 2015. The Loan Estimate must be provided to the consumer three business days after the application, and the Closing Disclosure must be provided to the consumer three days before closing.
 

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