CFPB Fixes ‘Black Hole’ in Mortgage Rules

April 30, 2018

The Consumer Financial Protection Bureau says it has fixed what’s become known as an information “black hole” in the Know Before You Owe mortgage rules, and the agency is attempting to provide greater clarity to borrowers when it comes to disclosing increases in closing costs. Under a new amendment to the mortgage rules, the CFPB clarifies when lenders are allowed to pass increased closing costs on to consumers and makes the disclosure of such increases clearer on the Closing Disclosure form.

The mortgage rules, also known as TILA-RESPA Integrated Disclosure, or TRID, first took effect Oct. 3, 2015, and ushered in new Loan Estimate and Closing Disclosure forms that lenders must supply to consumers. But problems arose with closing timelines when a borrower’s mortgage costs increased after the lender already provided a Closing Disclosure. Such circumstances forced lenders to provide a new disclosure to the consumer, complicating the ability to meet closing dates. 

The original rules did not contain provisions for how lenders should issue revised disclosures, creating a situation where banks were unable to provide either a revised Loan Estimate or a corrected Closing Disclosure. The amendment now clarifies that lenders will be allowed to reissue a Closing Disclosure as long as it has issued an initial disclosure to the borrower within four days of closing. 

Leading up to the revision of the rules, the CFPB collected public comments, for which the National Association of REALTORS® provided feedback. In its letter, NAR advocated for adoption of the proposed rule and explained the advantages of additional lender flexibility to facilitate improved communication and an overall more transparent and efficient process for the consumer.

According to the CFPB’s proposed rule, “The Bureau proposed to allow creditors to reset tolerances using a Closing Disclosure without regard to the four-business day limit. Under the proposal, as under the current rule, to reset tolerances with a Closing Disclosure, creditors would have been required to provide the Closing Disclosure to the consumer within three business days of receiving information sufficient to establish that a reason for revision applies. Further, as under the current rule, creditors would have been allowed to reset tolerances only under the limited circumstances described in § 1026.19(e)(3)(iv).”

The final rule will take affect within 30 days after it is published in the Federal Register. 

Source: “CFPB Fixes TRID ‘Black Hole,’ Amends Know Before You Owe,” HousingWire (April 26, 2018) and “CFPB Finalizes Revisions to TRID Timing Rules,” Mortgage News Daily (April 27, 2018)