Banks are backing the Consumer Financial Protection Bureau’s effort to simplify required mortgage disclosures, but they worry that simpler isn’t necessarily better, American Banker reported Nov. 20.
In comment letters responding to the CFPB’s plan, bankers noted that some requirements — including a rigorous timeline for providing the new forms to borrowers, limited disparity of estimated charges between preliminary and final disclosures and “all-in” annual percentage rate — would add difficulty and cause confusion.
“We are concerned that some aspects of the proposal will add ‘information overload,’ detract from the quality of disclosures and impose unwarranted and unnecessary burdens on creditors,” Sy Naqvi, chief executive of PNC Mortgage, wrote in a Nov. 6 letter, American Banker reported.
Several of the proposed reforms had been initiated by the Federal Reserve Board before the CFPB was created under Dodd-Frank and assumed rulemaking for disclosures and undertook the task of joining the Truth in Lending Act and the Real Estate Settlement Procedures Act forms.
In their response to the CFPB, financial institutions primarily focused on the proposed inclusion of additional details in estimates for finance charges and the annual percentage rate, American Banker reported.
However, the institutions also took issue with having to submit a closing disclosure three days prior to closing, along with lowering allowable tolerances — the kind of charges that are permitted to be higher on the closing disclosure than they were in the previous loan estimate form.
“Overly strict timeframes, lack of tolerances on fees and charges and the inability to accommodate last minute changes to avoid re-disclosure create a market environment where consumers will see higher charges for certain services, inflexible and extended timelines to complete the mortgage origination process, and possible restriction of mortgage credit for certain consumers,” Ron Haynie, executive vice president for mortgage services with the Independent Community Bankers of America, wrote in his bank’s response, American Banker reported.
Those submitting comments noted that consolidating the TILA and RESPA forms should not get weighed down because of additional requirements that were not included in regulation before the CFPB initiated the project to combine the two regimes.
“The bureau should continue to focus its energy on the enormous job of integrating the forms, which the (Mortgage Bankers Association) fully supports, without making undue changes to the rules,” David Stevens, president and chief executive officer of the MBA, noted in a Nov. 6 letter, American Banker reported. “MBA recognizes that RESPA and TILA disclosure requirements differ, necessitating some changes to the rules. Nevertheless, other proposed changes to the definition of application tolerances, timing and the introduction of a new APR, to name a few, extend far beyond what is needed and threaten to divert energy and support from this important effort.”
Others submitting comments to the CFPB noted potential in the bureau’s plans to simplify the forms.
Bill Himpler, executive vice president of the American Financial Services Association, noted problems with the proposed disclosure as they would pertain to some types of loans, yet he said that “proposed disclosures are much easier and more understandable for consumers for many transactions, particularly the standard home purchase money mortgage,” American Banker reported.
However, bankers and others strongly encouraged the bureau to reconsider the comprehensive finance charges and other proposed elements. For instance, including additional fees in rate calculations could result in loans appearing to be more expensive than they are and cause the loans to be disqualified for regulatory status as part of other regulations and may even restrict credit in some situations.
“The ‘all-in’ finance charge would result in higher ‘points and fees’ figures, which are calculated using the finance charge as the starting point,” wrote Michael S. Malloy, mortgage policy and counterparty relations executive at Bank of America, American Banker reported. “Consequently, this would reduce the number of loans that would otherwise be ‘qualified mortgages’ under Dodd-Frank’s ability-to-repay requirements, given that qualified mortgages, as proposed, will not have points and fees in excess of three percent of the ‘total loan amount.’”
Some consumer advocacy groups also expressed concerns about the more inclusive rate calculation.
A Nov. 6 letter from the Center for Responsible Lending said, “The bureau should not pursue a change in the finance charge definition at this time,” American Banker reported. “While the bureau correctly identifies the consumer benefits that could come from an all-in finance charge definition in terms of greater transparency and improved shopping ability, the inter-related nature of current mortgage laws makes changes at this time a complicated undertaking.”
Some bankers noted that institutions that do not consider themselves to be high-cost lenders would be pushing the envelope with the new requirement.
“Macon Bank does not presently originate high-cost loans. However, the proposed changes to the definition of finance charge will cause APR’s to increase and more loans will exceed the high-cost, higher-priced and higher-risk thresholds,” wrote Patti Morgan, lending compliance specialist at the Franklin, N.C.-based bank, American Banker reported.
Banks further cautioned that a provision requiring lenders to provide consumers a closing document three days early — which in many cases would compel lenders to restart the three-day timeframe if an estimate was revised — does not account for typical last-minute changes that are difficult to control.
“Bank of America requests that the CFPB expand the category of changes that allow for provision of an updated disclosure at the closing table, instead of requiring re-disclosure and a new three-day waiting period, to include changes in costs that are outside the control of the lender,” Malloy wrote, American Banker reported.
As part of the proposal, some portions of the disclosure would get an exemption from the three-day requirement, including charges resulting from negotiations between a buyer and seller after a final walk-through, and other small adjustments that lead to less than $100 in increased costs.
However, lenders want additional flexibility.
“Regarding subsequent re-disclosures, we believe the rule needs to provide more flexibility to ensure that an additional three business day waiting period is imposed only when it will truly benefit the customer,” Michael J. Heid, president of Wells Fargo Home Mortgage, wrote in a Nov. 5, letter, American Banker reported.
Lenders also said the lower tolerances permitted after the release of an initial disclosure form would be excessive. The rule dictates that select charges could not increase between the time the lender initially shared the loan estimate and the closing. Those charges would include the amount the lender charged for its own services, charges for services provided by a lender’s affiliate and charges that accumulated when the lender prevented the borrower from shopping for a more favorable price. Additionally, charges for other services could not rise by more than 10 percent.
Still, parties indicated that they saw minimal justification for lower tolerances.
“There is no indication that current tolerances are inadequate, and CFPB should not make such changes unless it has data that a tightening of tolerances is necessary to prevent ongoing abuses at closing, and that unintended consequences will not result,” Robert Davis, the American Bankers Association’s executive vice president of mortgage markets, financial management and public policy wrote in a Nov. 6 letter, American Banker reported.