Real Estate Industry Unites Asking for Hold-harmless Period for TRID

May 14, 2015

ALTA President Diane Evans NTP and all three other witnesses testifying before the Housing and Insurance Subcommittee of the House Financial Services Committee asked Congress to pass legislation that would implement a hold-harmless period for the Consumer Financial Protection Bureau's TILA-RESPA Integrated Disclosures (TRID) through 2015.

Participating in the May 14 hearing titled "TILA-RESPA Integrated Disclosure: Examining the Costs and Benefits of Changes to the Real Estate Settlement Process," Evans said the CFPB must provide time to ensure the process changes required by TRID don’t result in closing delays for homebuyers.

“This new regulation is over-reaching, expensive and confusing—not only for small businesses but large companies too,” Evans said. “Implementing TRID requires more than simply updating our systems for two new disclosure forms. It requires a paradigm shift in the way real estate settlements occur in this country.”

Also testifying during the hearing and asking for a hold-harmless period were Cynthia Lowman, president of United Bank of Michigan and representing the American Bankers Association; Laurie Goodman, center director of Housing Finance Policy Center for the Urban Institute; and Chris Polychron, executive broker at 1st Choice Realty and representing the National Association of Realtors.

Getting ready for Aug. 1 is an enormous challenge that will not come cheap to the industry or to consumers. According to the CFPB’s own estimates, implementing this new process will cost the settlement services industry $67.8 million over the next five years. It will cost lenders $207 million per year for the next five. That brings the total price tag for implementation to more than $1.3 billion.

Evans said the company she works for—Land Title Guarantee Co. in Colorado—has already spent a significant amount of time training more than 1,000 real estate agents, 300 lenders and their employees and 60 homebuilder employees on the new rule.

“This process has diverted many of our staff away from their regular jobs of assisting homebuyers,” she added.

Evans asked members of the subcommittee to support H.R. 2213, a bill introduced by Reps. Steve Pearce (R-N.M.) and Brad Sherman (D-Calif.) that would provide for a hold-harmless period of restrained enforcement and liability until Jan. 1, 2016, following the Aug. 1 implementation of TRID as long as companies show a good-faith effort to comply. Without a hold-harmless period, consumers may experience delays as settlement agents, real estate agents and lenders work to comply with these new regulations. Additionally, Reps. Blaine Luetkemeyer (chair of the Subcommittee of the House Financial Services Committee) and Randy Neugebauer sent a letter to the CFPB asking for a hold-harmless period until Jan. 1.

“Disruptions or delays in real-life transactions don’t just impact one family—its consequences affect many more,” Evans said. “In a typical transaction, the seller of one house is going to be the buyer of someone else’s home.  The domino effect of one closing being delayed results in a number of families being stranded—leaving them looking for alternative housing with moving vans sitting in the driveway.”

Evans asked members of the subcommittee to help ensure homebuyers leave their settlements with “keys in hand and a better understanding of the costs of their transaction, including title insurance.”

In her submitted testimony, Lowman said the complexity of the new rules, and the central role they will play in nearly every residential real estate transaction requires that lenders, their compliance software vendors, and other parties involved in the settlement process be given adequate time to ensure compliance and a smooth transition to the new regulatory regime. New processes will be required for every bank, and these processes must be tailored to each product type and each jurisdiction across every state.

“The bottom line is that these new rules fail to achieve a simplified disclosure regime, and contain numerous ambiguities that raise compliance concerns for lenders and will lead to confusion and delays for borrowers if the rules are implemented as scheduled,” said Lowman, who added that the ABA supports a hold-harmless period. “There’s a lot of minutia in the rule that impacts the numbers we must provide to our customers. This period of time we are asking for lets us try it on and make sure it fits right without the penalty of affecting consumers.”

Goodman echoed the sentiment that a hold-harmless period would allow the industry and CFPB to work through unknown issues.

“A hold-harmless period will force implementation on August 1, but will give industry participants an important learning period,” she said. “Without this period, the severe consequences for errors under TILA may cause lenders to reduce originations, ultimately harming the borrowers this was designed to help. Ultimately, TRID, if implemented properly, should result in a vast improvement in the consumer experience. Let’s give the lenders the breathing room they need to do this right.”

During his testimony, Polychron said August is the third busiest month of the year for home sales. In his submitted testimony, he cited NAR home sales data that more than 40,000 transactions per month could be impacted if only 10 percent of transactions experience issues following implementation of the rule. Polychron compared the implementation of a hold-harmless period to football.

“In football, they play preseason games that don’t count against them,” he said. “That’s kind of like what we’d like to see here.”

Rep. Keith Rothfus (R-PA) agreed that there would be glitches following implementation and asked the panelists what they believed would be some of the challenges not accounted for by the CFPB.

“That’s part of the reason why a delayed enforcement is so important,” Evans said. “We don’t exactly know what the issues may be. Under the proposed rule, a buyer risks losing their earnest money if a closing doesn’t happen in a timely manner. The loss of $1,000 or $10,000 is huge to the homebuyer.”

In addition, Evans also told the subcommittee that the CFPB should amend its rule and allow the title and settlement industry to disclose the price of title insurance accurately to consumers on the integrated disclosures. She pointed out that the TRID rule prohibits the accurate disclosure of fees for title insurance.

“The CFPB must fix their requirement that consumers receive inaccurate prices for title insurance,” Evans said. “This is the only cost that the CFPB prevents homebuyers from knowing the actual amount they will pay. Purchasing a home is one of the largest investments a consumer makes in their lifetime. Homebuyers want and need to know the true costs of their transaction, including the one-time cost of title insurance. TRID fails consumers in this regard.”

Contact ALTA at 202-296-3671 or [email protected].