Today, the CFPB issued a letter to various industry trade groups, including the Mortgage Bankers Association, the American Bankers Association, and the Independent Community Bankers of America, acknowledging that the implementation of the “Know Before You Owe” rule (otherwise known as “TRID”) poses many “operational challenges.” Many financial institutions and industry participants do not have the capability of minimizing compliance risk by bringing all operations in-house the way some of the large financial institutions are approaching compliance. Lenders working with other industry participants, such as title companies, are required to coordinate closely to ensure that the Loan Estimate does not have deficiencies that require re-disclosure. As we previously wrote about in past blog posts, TRID is a highly technical and complex rule which has been very challenging to implement.
An example of one of the many technical aspects of the rules that continues to challenge the mortgage industry is the calculation method required by TRID as it relates to title insurance premiums. Title insurers have been struggling with how to disclose the owner’s and the lender’s title insurance premiums on the Closing Disclosure form in situations where there is a “simultaneous” issuance of a lender’s and owner’s title policy. The CFPB’s calculation method renders inaccurate disclosures of the individual lender’s and owner’s title insurance premiums on the disclosure forms. Notwithstanding the inaccuracy, the CFPB has not changed its calculation method because the CFPB is worried that disclosing the discounted rate of the lender’s policy and showing the owner’s policy at the full premium would cause consumers to fail to understand the incremental cost of purchasing an owner’s title insurance policy. As such the CFPB’s calculation ends up fostering inaccurate disclosures of the individual costs of the premiums but under the rule’s mandated calculation the sum of the two premiums will equal the sum actually charged to the consumer when a consumer pays for both the owner’s and lender’s title insurance policies. For lender’s who face liability for inaccurate disclosures, however, these inaccuracies are problematic because the CFPB guidance’s is not an official legal interpretation that can be relied upon as a safe harbor.
In the letter today, the CFPB stressed that it has and will continue to address industry concerns with informal guidance through webinars, compliance guides, and various fact sheets. Although appreciated, many industry groups will continue to seek written guidance, in the form of either amendments to the regulations or official interpretations. In particular, many investors in the secondary market have not been willing to purchase mortgage loans with even minor TRID violations without more certainty and clarity as to enforcement and interpretation of various TRID rules.
The letter today may provide such relief. The CFPB announced that they have begun drafting a Notice of Proposed Rulemaking (NPRM) which is expected to be released in late July of this year. Industry groups will be able to comment on the NPRM, and will be given the opportunity to participate in meetings in May and early June. In the meantime, the CFPB continues to reiterate that “good faith compliance efforts” will continue to be taken into account by regulators in its determination of compliance with TRID.