ALTA RESPA Task Force Addresses Concerns Over Initial Mortgage Disclosure
|November 8, 2011|
While the Consumer Financial Protection Bureau has now shifted its focus to the final disclosure form, ALTA’s RESPA Task Force provided substantial feedback following the Bureau’s fifth round of testing the combined initial mortgage disclosure.
“While ALTA members do not issue the application stage disclosure, we are interested in the form and application process because of the impact that they will have on the closing stage disclosure, which ALTA members prepare and deliver to consumers, as well as how they will affect the entire transaction, generally,” Justin Ailes, ALTA’s vice president of government and regulatory affairs, wrote to the CFPB.
Following the CFPB's testing of the combined mortgage disclosure in New Mexico, it is not clear whether the early disclosure form is intended to disclose costs related to the loan or also to include costs related to the entire real estate transaction. This uncertainty among real estate settlement agents is significant, according to the Task Force. Consumers will struggle to shop for settlement services if the form is intended to disclose only those costs related to the loan. Consumers will not have a clear understanding of the cash needed to close if costs related to the real estate transaction are not included in the early disclosure form. ALTA has asked for guidance from the CFPB to clarify whether the initial disclosure form will disclose information about loan costs and transaction costs. ALTA believes it should.
The Task Force previously indicated its concern that the forms should not discourage consumers against purchasing an Owner’s Title Insurance Policy by describing this protection as “optional” or “not required.” The Task Force suggests it simply be disclosed as Owner’s Title Insurance.
In addition to this continued concern, the Task Force provided feedback about the concept of tolerance, the disclosure of title fees and the lenders cost of funds.
When HUD issued the current RESPA regulation in 2009, it introduced the concept of tolerance, which requires that some costs, listed on page three of the Good Faith Estimate, could either not increase in any amount (called Zero Tolerance) or could not increase by more than a set amount of 10 percent in the aggregate without a “change in circumstances,” as defined in the regulation. Under the tolerance concept, lenders are required to document a changed circumstance and either reissue the GFE or cure the tolerance violation.
The Bureau’s latest draft disclosure appears to remove the need to cure a tolerance violation. On page two, the form now includes the following language on the concept of tolerance, “Limits on Increases: Generally, charges in A and Transfer Taxes in D cannot increase, and the total of the charges in B, C, and Recording Fees in D cannot increase by more than 10%. We will notify you if a change causes an increase above these limits.”
This shift in language raises the following questions: