CFPB Moves to Calm Fears Over Minor Closing Errors

January 4, 2016

Just before the close of 2015, the Consumer Financial Protection Bureau told bankers that they won’t be held liable for most minor errors in loan processing and paperwork under new mortgage disclosure rules, known as the “Know Before You Owe” rule or TRID.

The new rule took effect Oct. 3, 2015, and it has been blamed for causing longer closings due to concerns over minor clerical errors in Closing Disclosures. The rule requires lenders to provide borrowers with a new combined Closing Disclosure that lists all the charges, fees, and line items three days prior to closing.

Richard Cordray, CFPB’s director, issued a letter to the Mortgage Bankers Association on Dec. 29 that said small paperwork errors and typos in key sections of the new disclosure rules would not likely lead to lender lawsuits or regulatory punishments from federal agencies that buy the loans.

“We believe that the risk of private liability to investors is negligible for good-faith formatting errors and the like,” Cordray wrote to MBA. “We recognize that a certain level of minor errors in the early days of implementation is to be expected.”

Average closing times on loans have grown since TRID took effect, by as many as five days. The delay in closings has also led some borrowers having to pay more in loan lock fees to hold interest rates until closings. 

The National Association of REALTORS® recently reported that sales of existing homes dipped significantly by more than 10 percent in November – the slowest in 19 months – due mostly to the new regulations that have been lengthening closing times. The average closing time rose to 41 days in November, up from 36 days. NAR’s REALTOR® Confidence Index showed that 47 percent of real estate professionals reported in November that they were seeing longer closing times from a year ago

The new clarification from CFPB may prompt lenders to proceed more confidently.

“Needless to say, we think this is a very positive development,” Pete Mills, a senior vice president at the MBA, said about CFPB’s recent clarification to lenders.

Source: “CFPB Gives Mortgage Lenders a Christmas Present,” MarketWatch (Dec. 31, 2015)