Mass. Association of Home Buyers Takes Issue with New CFPB Proposal on Mortgage Disclosures
As a non-profit organization, the Massachusetts Association of Buyer Agents (MABA) monitors and comments on proposed legislation that affects home buyers. The Consumer Financial Protection Bureau (Bureau) is currently proposing changes to mortgage rules that MABA has reviewed and has comments on to affect the proposed regulations. To assist home buyers in understanding these proposed regulations, below is a summary of the MABA position as released to the press and an overview of the new rules.
The following proposed CFPB rules are referenced in the MABA news release below. Developed in large part to address issues that helped contribute to the 2008 financial crisis, the new rules are aimed at bringing greater transparency and accountability to the mortgage marketplace. In addition to the summaries provided, PDFs of the complete proposals are available to download.
MABA News Release
MASS ASSOCIATION OF BUYER AGENTS TAKES ISSUE WITH NEW CFPB
PROPOSAL ON MORTGAGE DISCLOSURES
Changing Disclosures without Changing Timelines Won't Help
Consumers Looking to Shop for the Best Deal
Boston, MA – October 16, 2012 – While generally supporting the Consumer Financial Protection Bureau's (CFPB) new proposals aimed at simplifying the mortgage application process and protecting consumers, the Massachusetts Association of Buyer Agents (MABA) has gone on record criticizing the bureau's new proposal on mortgage disclosures – the so-called "Know Before You Owe" proposal.
"In and of itself, changing the disclosures will do little to help consumers looking to comparison shop prior to locking in a mortgage," said MABA's board of directors. "The fact of the matter is that unless buyers can get information on loan costs, such as interest rates, monthly payments, and closing costs earlier in the transaction process, it's all for naught because there is rarely enough time to shop for a better deal the way things are currently set up." According to the CFPB, this was one of the primary drivers for overhauling the mortgage disclosures – that is, to make shopping for a mortgage easier and more efficient.
The board's statement continues: "As things now stand, lenders can't provide a good faith estimate of loan costs until they have an application in hand, which means there needs to be a property with an accepted offer or purchase and sale agreement. In order to give buyers time to comparison shop, that needs to change, as does the timeline for mortgage contingencies – typically made tight to protect the seller's interest. Consumers need more information sooner in order to effectively shop for a loan. In short, they need to be able to get disclosures in a meaningful way – at a meaningful time. There needs to be a way to get a buyer a binding good faith estimate earlier in the process – perhaps based on certain conditions, such as a single-family up to a certain price and/or a certain credit score range."
The MABA board also weighed in on two other CFPB proposals – one pertaining to loan origination fees, the other designed to prevent mortgage servicer mistakes. Here, the MABA board was more supportive of the CFPB's efforts to bring clarity to the mortgage marketplace and prevent the kind of abuses that contributed to the 2008 financial crisis, though it did offer some additional criticisms – and recommendations.
A key element of the new loan origination rules requires lenders to offer a no point, no fee option. According to the CFPB this, again, is being done to help consumers to mortgage shop. However; as the MABA board sees it, the real issue here is that many consumers don't understand how loans are really structured and, thus, have a hard time making comparisons. "Consumer-friendly lenders can easily calculate the costs of any product to include a no point, no closing cost option. Some do it all the time. The problem is that most consumers don't understand how mortgage pricing works. By helping with mortgage pricing, a good buyer's agent can add value to the process."
Regarding the proposed new rules on mortgage servicers, the board said: "Fundamentally, these rules are designed to protect homeowners from surprises and costly servicer mistakes. It's a good step in the right direction. One question not answered, though, is what happens if the lender does not follow the correct steps and forecloses on a homeowner." The board recommends that there be a requirement that lenders present proof that all procedures were properly followed in a timely manner before they would be able to complete a foreclosure. "The bottom line: none of these rules will work unless there are timelines attached to them and penalties or incentives that will get the lenders to follow them."
The MABA board of directors plans on submitting its comments to the CFPB shortly for its review. The public has been invited to comment on the new CFPB proposals at its website – www.consumerfinance.gov/notice-and-comment. The CFPB will review and analyze all comments prior to issuing final rules in January 2013.
Integrated Mortgage Disclosures under the Real Estate Settlement Procedures Act (Regulation X) and the Truth in Lending Act (Regulation Z)
Sections 1032(f), 1098, and 1100A of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) direct the Bureau to issue proposed rules and forms that combine certain disclosures that consumers receive in connection with applying for and closing on a mortgage loan under the Truth in Lending Act and the Real Estate Settlement Procedures Act. Consistent with this requirement, the Bureau is proposing to amend Regulation X (Real Estate Settlement Procedures Act) and Regulation Z (Truth in Lending) to establish new disclosure requirements and forms in Regulation Z for most closed-end consumer credit transactions secured by real property. In addition to combining the existing disclosure requirements and implementing new requirements in the Dodd-Frank Act, the proposed rule provides extensive guidance regarding compliance with those requirements.
Truth in Lending Act (Regulation Z); Loan Originator Compensation
The Bureau of Consumer Financial Protection has issued a proposed rule amending Regulation Z (Truth in Lending) to implement amendments to the Truth in Lending Act (TILA) made by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). The proposal would implement statutory changes made by the Dodd-Frank Act to Regulation Z's current loan originator compensation provisions, including a new additional restriction on the imposition of any upfront discount points, origination points, or fees on consumers under certain circumstances. In addition, the proposal implements additional requirements imposed by the Dodd-Frank Act concerning proper qualification and registration or licensing for loan originators. The proposal also implements Dodd-Frank Act restrictions on mandatory arbitration and the financing of certain credit insurance premiums. Finally, the proposal provides additional guidance and clarification under the existing regulation's provisions restricting loan originator compensation practices, including guidance on the application of those provisions to certain profit-sharing plans and the appropriate analysis of payments to loan originators based on factors that are not terms but that may act as proxies for a transaction's terms.
2012 Truth in Lending Act (Regulation Z) Mortgage Servicing
The Bureau of Consumer Financial Protection (the Bureau or CFPB) is proposing to amend Regulation Z, which implements the Truth in Lending Act (TILA), and the official interpretation of the regulation. The proposed amendments implement the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act or DFA) provisions regarding mortgage loan servicing. Specifically, this proposal implements Dodd-Frank Act sections addressing initial rate adjustment notices for adjustable-rate mortgages (ARMs), periodic statements for residential mortgage loans, and prompt crediting of mortgage payments and response to requests for payoff amounts. The proposed revisions also amend current rules governing the scope, timing, content, and format of current disclosures to consumers occasioned by the interest rate adjustments of their variable-rate transactions.