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Consumer Financial Protection Bureau

ALTA Details Implementation Cost of CFPB’s Draft Mortgage Disclosure on Settlement Providers

March 15, 2012

In a letter to the Consumer Financial Protection Bureau, ALTA outlined its main concerns regarding the Bureau’s draft integrated RESPA/TILA mortgage disclosure forms, including the cost of implementation on settlement service providers.

After advising a Small Business Review Regulatory Enforcement Fairness Act (SBREFA) panel on March 6 how the new forms will impact closings and their business, Pam Day of Day Title Services in Richmond, Va.; Celia Flowers of East Texas Title Companies in Tyler, Texas; Dave Windle of Cal-Sierra Title in Quincy, Calif.; and Steve Buckman of Buckman Legal in Washington, D.C., followed up by sending a letter to Richard Cordray, CFPB’s director.

The March 13 letter highlights ALTA’s concerns regarding who will complete the Settlement Disclosure Form (SDF), the three-day rule and cost of implementation.

According to the letter, the title industry estimates that using the current versions of CFPB’s draft forms in accordance with the regulatory outline will increase costs to small business settlement providers by as much as $800 per employee in upfront implementation and training costs; $2,360 to train lenders, Realtors and other customers; a 20 percent increase in their yearly software maintenance fee; and a 20 percent decrease in annual revenue due to decreased productivity. An itemization of these costs is detailed in Exhibit “A” of the letter.

“The CFPB’s draft disclosure forms and the regulatory outline will be costly for small settlement agents to implement and could put small agents out of business by making the lender responsible for producing the settlement disclosure,” the letter said.

These significant additional costs are due mainly to four distinct problems with the draft forms and regulatory proposal:

• the reformatting of the settlement statement;
• the lack of uniformity in lender practices;
• the requirement to provide the settlement disclosure three days in advance of closing; and
• the logistics of coordinating delivery of the settlement disclosure when some costs are known only to the lender while other costs are known only to the settlement agent.

The letter offers solutions to improve the CFPB’s draft disclosure forms and regulatory outline. ALTA recommendations will make it less costly for small businesses to implement and less disruptive to the larger real estate transaction.

Concluding its letter, ALTA encourages the CFPB to avoid proposing rules that can only be achieved by large players in the settlement industry.

“One of the unintended consequences of the recent revisions in the 2008 HUD RESPA Rule lenders now limit the settlement agents with whom they work to close transactions because of increased liability,” the letter said. “Not only will small settlement agents be hurt by this inability to compete, but consumers will be harmed as well from the lack of consumer choice, ultimately leading to higher costs.”

The basic tenet of Section 4 of RESPA should ultimately guide CFPB’s direction: that “the form prescribed under this section shall be completed…by the person conducting the settlement.” We strongly believe that a neutral third party conducting the settlement is absolutely necessary for CFPB to achieve its dual goals of improving consumers understanding of their mortgage transaction and facilitating industry’s compliance with TILA and RESPA.