Real Estate, Lending Industries Offer Mixed Reactions To CFPB’s ‘Know Before You Owe’ Disclosure Changes

Real Estate In-Depth | July 2017

WASHINGTON—The Consumer Financial Protection Bureau finalized updates to its “Know Before You Owe” mortgage disclosure rule with amendments released on July 7th that the bureau stated are intended to formalize guidance in the rule, and provide greater clarity and certainty.

The changes will facilitate implementation of the Know Before You Owe rule by the mortgage industry. The CFPB also released a limited follow-up proposal to address an additional implementation issue regarding closing disclosure.

“A mortgage is one of the largest financial decisions a consumer will ever make, and CFPB’s rules help ensure consumers have the easy-to-understand information they need before making a decision that will significantly impact their financial lives,” said CFPB Director Richard Cordray. “Our updates will clarify parts of our mortgage disclosure rule to make for a smoother implementation process for lenders and consumers.”

The Know Before You Owe mortgage disclosure rule took effect Oct. 3, 2015. The CFPB’s rule created new, streamlined forms that consumers receive when applying for and closing on a mortgage. In addition to clarifications and technical corrections, the amendments that the bureau is finalizing address a handful of other issues within the rule, including:

• Tolerances for the total of payments: Before the Know Before You Owe mortgage disclosure rule, the total of payments disclosure was determined using the finance charge as part of the calculation. The Know Before You Owe mortgage disclosure rule changed the total of payments calculation so that it did not make specific use of the finance charge. The Bureau is now finalizing updates to include tolerance provisions for the total of payments that parallel the tolerances for the finance charge and disclosures affected by the finance charge.

• Housing assistance lending: The Know Before You Owe mortgage disclosure rule gave a partial exemption from disclosure requirements to certain housing assistance loans, which are originated primarily by housing finance agencies. The bureau’s update, as finalized, promotes housing assistance lending by clarifying that recording fees and transfer taxes may be charged in connection with those transactions without losing eligibility for the partial exemption. The update also excludes recording fees and transfer taxes from the exemption’s limits on costs. Through the update, more housing assistance loans will qualify for the partial exemption, which should encourage these loans.

Cooperatives: The bureau is finalizing updates to extend the rule’s coverage to include all cooperative units. Currently, the rule only covers transactions secured by real property, as defined under state law. Cooperatives are sometimes treated as personal property under state law and sometimes as real property. By including all cooperatives in the rule, the bureau is simplifying compliance and ensuring that more consumers benefit from the rule, the bureau stated.

Privacy and sharing of information: The Know Before You Owe mortgage disclosure rule requires creditors to provide certain mortgage disclosures to the consumer. The bureau has received many questions about sharing the disclosures provided to consumers with third parties to the transaction, including the seller and real estate brokers. The bureau understands that it is usual, accepted, and appropriate for creditors and settlement agents to provide a Closing Disclosure to consumers, sellers, and their real estate brokers or other agents. The bureau is finalizing additional commentary to clarify how a creditor may provide separate disclosure forms to the consumer and the seller, the agency stated.

The finalized amendments are available at: http://files.consumerfinance.gov/f/documents/201707_cfpb_Final-Rule_Amendments-to-Federal-Mortgage-Disclosure-Requirements_TILA.pdf

In addition to the final rule, the CFPB issued a proposal addressing when a creditor may use a Closing Disclosure, instead of a Loan Estimate, to determine if an estimated closing cost was disclosed in good faith and within tolerance. Comments are due 60 days after the proposal’s publication in the Federal Register and will be weighed carefully before a final regulation is issued.

The proposal is available at: http://files.consumerfinance.gov/f/documents/201707_cfpb_Proposed-Rule_Amendments-to-Federal-Mortgage-Disclosure-Requirements_TILA.pdf

In an update to the “Know Before You Owe” mortgage rule, the Consumer Financial Protection Bureau stated clearly that it is “usual, accepted, and appropriate” for real estate agents and brokers to have access to the Closing Disclosure.

The National Association of Realtors released a statement praising the CFB’s announcement, stated that NAR had pushed vigorously for the clarification. In a statement, NAR President William E. Brown said he hopes the change will encourage greater cooperation between all parties involved in real estate transactions.

“Consumers depend on their real estate agent to help guide them from pre-approval to closing, but that job is significantly harder when an agent is denied access to the closing disclosure,” said Brown. “The CFPB has again made clear that lenders may share disclosures with third parties, including real estate agents. This was common practice for years in advance of Know Before You Owe, and Realtors are eager to see that cooperative atmosphere take hold once again.”

David H. Stevens, president and CEO of the Mortgage Bankers Association (MBA), stated, “MBA appreciates the CFPB’s efforts in amending the Know Before You Owe rule to address several significant questions that have been raised for some time by our industry. This is an extensive rule and we intend to review it closely with our members. We note that CFPB has proposed a new rule to deal with issues concerning needed revisions to the Closing Disclosure during the mortgage process that we will carefully review and comment on as well. MBA looks forward to continuing to work with the CFPB on rules and guidance to provide greater clarity to better protect consumers.”

The American Land Title Association was critical of the final Know Before You Owe amendments, stating the CFPB missed an opportunity to ease consumer confusion. “Chalk this one up to an opportunity missed. While it made some important clarifications, the CPFB failed to address the item that confuses buyers and sellers the most at closing, the requirement that they receive incorrect information about the cost of title insurance at the closing table,” said Michelle Korsmo, ALTA’s chief executive officer. “Our consumer research shows that 40% feel confused by the CFPB’s requirement to provide inaccurate pricing on title insurance.”

“While the CFPB’s disclosures have helped homebuyers better understand their mortgage costs, consumers would value their disclosures more if the CFPB showed the accurate costs of title insurance instead of the incremental costs. The CFPB has an obligation to make this simple change,” she added. “We strongly urge the bureau to start the process of writing a new regulation to fix to title fee disclosure so consumers can receive accurate information about title insurance at closing.”