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Consumer Financial Protection Bureau

CFBP Considering Two Options for Delivery of New HUD-1 to Consumer

February 23, 2012

In an outline of alternatives it is considering in the development of combined mortgage disclosure forms, the Consumer Financial Protection Bureau (CFPB) proposed two alternatives for assigning responsibility for providing the integrated Settlement Disclosure to the consumer.

The CFPB is in the process of create combined RESPA and Truth in Lending disclosure forms, which will result in a new GFE and HUD-1. Last year, the CFPB issued several iterations of a draft Loan Estimate, which will replace the TILA and GFE disclosures. The CFPB on Feb. 18 released its final draft form of the integrated Settlement Disclosure, which is combining the HUD-1 with TILA disclosures. The Bureau plans to publish the forms and proposed rules July 21.

The CFPB has convened a Small Business Review Panel to solicit feedback from small businesses that make mortgage loans and conduct mortgage closings. To assist the panel, the CFPB issued an outline of its proposals, focusing on the benefits and costs of the proposals under consideration.

According to the summary, the CFPB is considering proposing two alternative approaches for assigning responsibility for providing the integrated Settlement Disclosure to the consumer.

Because lenders provide data for the TIL disclosures and settlement agents complete the HUD-1, ALTA’s RESPA Task Force has suggested the Bureau bifurcate the Settlement Disclosure to delineate responsibilities between settlement agents and lenders.

The CFPB’s first alternative would make the lender solely responsible for delivering the Settlement Disclosure to the consumer. Option two would make the lender responsible for preparing the TILA-required information on the Settlement Disclosure. The settlement agent would be responsible for preparing the RESPA-required information. However, the lender and settlement agent would be jointly responsible for providing the consumer with an integrated Settlement Disclosure three days before closing, the CFPB said in its outline.

Under the first alternative, shifting responsibility for delivering the Settlement Disclosure from settlement agents to lenders would likely alter settlement agents’ role, but the exact impact is difficult to predict, the CFPB said in its outline. While lenders and settlement agents already coordinate completion and provision of the current HUD-1, if lenders were responsible for providing the Settlement Disclosure, these relationships may need to be renegotiated or formalized, which could require personnel time and result in legal fees for outside counsel.

“Lenders may be more likely to enter into affiliate relationships with service providers,” the CFPB said. “The effect of these relationships on competing small-entity service providers is unknown. Further, if affiliate relationships were to become more common, smaller lenders may be placed at a competitive disadvantage.”

The CFPB also said the first alternative would place greater liability risk and logistical burden on lenders. Lenders may need to hire additional staff and may incur legal costs in seeking advice regarding the liability of disclosing RESPA content on the Settlement Disclosure. However, the Dodd-Frank Act amended TILA to require lenders to disclose in the early and final TILA disclosures the aggregate settlement costs provided in connection with the loan. Thus, the incremental effect of this alternative is mitigated by the fact that, because of the statute, some of the burden would shift to lenders under either alternative.

The CFPB notes it’s also considered making settlement agents solely responsible for providing the Settlement Disclosure to the consumer. However, the CFPB understands that settlement agents may not have access to much of the information regarding loan terms that must be disclosed in the Settlement Disclosure.

In addition, the CFPB is considering issuing a proposal to require delivery of the integrated Settlement Disclosure three business days before closing in all circumstances. However, in order to prevent unnecessary closing delays, limited changes would be permitted after provision of the Settlement Disclosure to reflect common adjustments, such as changes to recording fees, the CFPB said.

Reissuance of the Settlement Disclosure and an additional three-day waiting period would be required only if during the three days after issuance of the Settlement Disclosure: (a) the APR in the Settlement Disclosure increases by more than 1/8 of 1 percent (which is the current threshold for redisclosure under TILA); (b) an adjustable-rate feature, prepayment penalty, negative amortization feature, interest-only feature, balloon payment, or demand feature is added to the loan; or (c) the amount needed to close shown in the Settlement Disclosure increases beyond a specific tolerance (amount to be determined).

The CFPB notes that requiring that three business days elapse between the time the Settlement Disclosure is provided and the closing could result in closing delays if, for example, the consumer is under a contractual obligation to close by a particular date, which may have negative consequences for the lender and the settlement provider (e.g., lost revenue if transactions fall through and legal exposure). The burden of the three-day requirement could fall disproportionately on small entities if they have less ability to ensure timely delivery of final charges, according to the CFPB.

ALTA’s RESPA Task Force continues to share feedback and concerns with the CFPB. ALTA encourages members to take action and send comments to the CFPB. You can also share concerns with ALTA, by emailing Steve Gottheim, ALTA’s legislative and regulatory counsel.



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