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Consumer Financial Protection Bureau

CFPB: New Mortgage Disclosures Won’t Saddle Industry with Major Cost Increase

September 20, 2012

Responding to questions submitted by the House Committee on Small Business, Richard Cordray, the director of the Consumer Financial Protection Bureau, said its proposed regulations to simplify mortgage disclosures will likely result in equal or lower compliance costs for settlement agents and lenders.

The questions were submitted to Cordray following his Aug. 1 appearance before the panel. The hearing primarily focused on the Bureau’s effort to revise disclosure forms required under the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA) and the potential impact on small entities. The CFPB has proposed a new Loan Estimate, which would replace the current GFE and initial TIL disclosures, and a Closing Disclosure, which would replace the HUD-1 and final TIL disclosures.

Click here to read all of Cordray’s responses to Questions for the Record.

The CFPB estimated that the new disclosure forms would result in a one-time cost of more than $100 million. The committee asked Cordray who was responsible for the cost and whether settlement agents and lenders may pass some costs to consumers.

“This figure is an estimate of the direct costs to creditors, mortgage brokers and settlement agents,” Cordray said. “The bureau does not believe that adoption of the integrated disclosures would impose any direct costs on consumers. However … consumers may bear some of the costs of the new disclosures if covered persons pass through some or all of the costs that would be imposed on them. The Bureau estimates that any increased costs to consumers per origination would be small.”

Cordray wrote that the cost burden “amounts to less than three dollars per origination when amortized over five years and spread across the estimated 8 million originations per year.”

After one-time costs are absorbed, the proposal would likely reduce the cost per origination, he also said. The Bureau believes the integrated disclosures will reduce the number of disclosures that will need to be prepared. According to Cordray, the new forms will be easier to explain to consumers than the current forms, resulting in significant time savings for settlement agents and lenders.

“Further, information submitted to the bureau by several settlement agents indicates that requiring the use of standard forms and providing clearer regulatory guidance could save as much as 30 minutes per closing by standardizing practices across lenders and reducing confusion. These time savings could lead to decreased compliance costs,” he wrote.

When the industry went through the most recent round of RESPA changes in 2010, ALTA’s vendor partners reported that the comparatively smaller changes by HUD’s rule cost each software company approximately $800,000 to $1 million to implement. Based on a conservative estimate, this round of changes is expected to cost closer to $2 to $2.5 million per software company. ALTA estimates estimate settlement companies will pay $800 per employee for upfront implementation and training and see a 20 percent annual increase in software fees. It’s also estimated that closing staff at small settlement providers will be able to close two fewer transactions per day, representing a 25 percent reduction in productivity for most settlement agents.

The CFPB is seeking feedback on how the proposed regulations will impact closings and business. Comments are due to the CFPB by Nov. 6. Click here to submit comments to the CFPB.

ALTA held a webinar Sept. 19 to address key concerns regarding the proposed regulations, share tips on commenting and suggested remarks you should send to the CFPB in order to have an effective impact on the rulemaking process. On the presentation were Rich Horn, CFPB senior counsel; Marvin Stone, senior vice president of business integration for Stewart Lender Services; Tim Evans, president of Evans Title and chair of the Title Action Network; and ALTA Legislative and Regulatory Counsel Steve Gottheim.

Horn said the CFPB is looking for useful data to support real life examples of how the proposal will impact business and consumers. Evans suggested that comments be personal, understandable and factual. His advice was to keep the message simple and refrain from industry jargon. Stone provided information on how to capture data that will be useful to the CFPB. He urged the industry to calculate implementation costs such as software upgrades as well as operational costs, such as the impact of possible “pre-closing” calls and new requirements and multiple scenarios for completing the Closing Disclosure.

Additionally, the House Committee noted that the industry has stressed to the CFPB that they will need a significant amount of time to implement any final TILA-RESPA Rule. Small businesses have said that they will need 12 to 18 months to upgrade software and systems and train their employees. In response, Cordray said the agency is aware that small businesses will have to make “extensive revisions to their software and to retrain their staff” and intends to grant sufficient time for compliance. He did not commit to a 12-18 month implementation period once the rule is completed, likely in 2013.

“Because the TILA-RESPA final rule will provide important benefits to consumers, the bureau wishes to make the rule effective as soon as possible,” he wrote.

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