CFPB Update: RESPA/TILA Rule - Merrimack Mortgage TPO Update RESPA TILA Rule(1).… · CFPB Update: RESPA/TILA Rule Module One: Getting Ready • Understanding the Past to Understand

CFPB Update: RESPA/TILA RuleCFPB Update: RESPA/TILA RuleCFPB Update: RESPA/TILA RuleCFPB Update: RESPA/TILA Rule

Module One: Getting Ready

• Understanding the Past to Understand the Future

• Overview of the New Combined Disclosures and Requirements

• Developing Your Road Map to ImplementationDeveloped by the Merrimack Mortgage Company, Inc. Compliance Team

© July 14, 2014

AgendaAgendaAgendaAgenda• Understanding the Past to Understand the Future

• Dodd Frank Mandate and Philosophy Influenced by Testing

• Comparing the Old With the New

• Review of New Forms

• Some Regulatory Specifics

• Penalties

• Implementation Concerns (and a little good news)

• Impact on Lenders, Title Industry, AFBAs

• Developing Your Roadmap to Implementation

Merrimack Mortgage Company, Inc. 2

Understanding the Past to Understand the FutureUnderstanding the Past to Understand the FutureUnderstanding the Past to Understand the FutureUnderstanding the Past to Understand the Future

JOINT REPORT TO CONGRESS, JULY, 1998: HUD and the Federal Reserve Board

Excerpt from the Executive Summary:

Section 2101 of the Economic Growth and Regulatory Paperwork Reduction Act of

1996 directed the Board of Governors of the Federal Reserve System (the Board) and the

Department of Housing and Urban Development (HUD) to simplify and improve the

disclosures given in transactions subject to the Truth in Lending Act (TILA)* and the Real

Estate Settlement Procedures Act (RESPA),’ including the timing for providing those

disclosures. The agencies were also asked to create a single TILA-RESPA disclosure

statement, if feasible, that would meet the purposes of the acts. These changes were to be

made by regulation, if possible; if statutory amendments were necessary, the Board and HUD

were to make legislative recommendations. In 1997, the agencies concluded that meaningful

change could come only through legislation. This report presents the Board’s and HUD’s

recommendations for revising TILA and RESPA.



• Back in the day, HUD was responsible for RESPA and the Federal Reserve Board was responsible for TILA

• In 1996, congress required the agencies work together to combine and simplify the disclosures, however, in 1998, in a joint report to congress, HUD and the Fed could not agree on an integration plan and neither would give up their authority



• The Financial Crisis of 2008 set the stage for major legislative reform

• As the rivalry between the two agencies continued, in 2009 the FRB issued a proposal with significant TILA changes

• That same year HUD finalized changes to RESPA and in 2010 the “New GFE” was born

• July 21, 2010 the Dodd Frank Wall Street Reform Act was passed by congress and signed into law by President Obama

• Title X of the Act Created the CFPB and gave the new agency regulatory authority over RESPA and TILA

• Title X, Section 1032(f) of the Act mandated the newly formed CFPB combine the RESPA and TILA disclosures (GFE and TIL)

• Not later than one year after the designated transfer date the Bureau shall propose fro public comment rules and model disclosures…..



• December 6, 2010: Treasury Hosts a Mortgage Disclosure Symposium

• February 21, 2011: Design begins

• May 18, 2011: Know Before You Owe Opens Online

• May 19, 2011: Qualitative Testing Begins

• February 21, 2012: CFPB Convenes Small Business Review Panel

• March 6, 2012: CFPB Meets With Small Businesses

• July 9, 2012: CFPB Proposes New Rule (Comments closed November 6, 2012)

• April 23, 2013: CFPB Begins Validating Their Testing

• June 18, 2013: Additional Testing with Modified Disclosures

• November 20, 2013: Final TILA-RESPA Rule


Understanding the Past to Understand the Understanding the Past to Understand the Understanding the Past to Understand the Understanding the Past to Understand the FutureFutureFutureFuture

Some Differences:

• RESPA’s anti-kickback provisions helps prevent abusive practices that drive up costs for consumers

• The GFE gives consumers full disclosure of costs associated with financing the transaction

• TILA provides disclosure of terms of the transaction, the cost of the credit expressed as an annual percentage rate (APR), and a projected payment schedule

• Both disclosures provide valuable information for consumers to use when shopping and comparing lenders



Some Overlapping/Contradicting Items

• RESPA and TILA overlap each other and use different terminology for the same term, for example:

• Lender V Creditor

• Definition of a Loan Originator

• Yield Spread Premium, LO Compensation

• Timing of Disclosures, Reflection Periods

• Definition of Business Day

• Penalties and Thresholds for Penalties (Tolerance levels on GFE, .125% on TIL)

• Both disclosures can be confusing to consumers


Dodd Frank Mandate and Philosophy Influenced by TestingDodd Frank Mandate and Philosophy Influenced by TestingDodd Frank Mandate and Philosophy Influenced by TestingDodd Frank Mandate and Philosophy Influenced by Testing

• As you saw from the CFPB timeline, a lot of thought, research and analysis went into the project to determine what would be most beneficial for the consumer. The goals were:

• Improve consumer understanding of the mortgage costs and process

• Assist in comparison shopping

• Prevent surprises at the closing table

• Make the forms easier to use


Comparing the Old With the NewComparing the Old With the NewComparing the Old With the NewComparing the Old With the New

• OLD

• RESPA and TILA

• Lender/Creditor

• Borrower

• Closing/Settlement

• Tolerances

• GFE

• TIL

• HUD1 Settlement Statement

• NEW

• New Rule will be amending RESPA & TILA

• Creditor

• Consumer

• Consummation

• Variations

• Loan Estimate

• Loan Estimate

• Closing Disclosure


Now One Form!

Review of New FormsReview of New FormsReview of New FormsReview of New Forms

Important Notes:

• Effective Date: Applications taken on or after August 1, 2015

• Applies to closed end loans, but does NOT apply to:• HELOCS

• HECMS

• Mobile Homes not attached to property


Review of New FormsReview of New FormsReview of New FormsReview of New Forms

• In Module II we will review the new forms in depth:

• Loan Estimate

• Closing Disclosure


Based on the new

terms, shouldn’t

that be a

Consummation

Disclosure?

SNARK

ALERT!

Some Regulatory Specifics Some Regulatory Specifics Some Regulatory Specifics Some Regulatory Specifics

• New Definition of an Application:

• In the past: The definition was the “SLAPIN 6” + one self defined element (any other information deemed necessary for the originator)

• New: Just the “SLAPIN 6”• Social Security Number

• Loan Amount

• Appraised Value (or estimate)

• Property Address

• Income

• Name (of consumer)

• Benefit from CFPB perspective: Earlier receipt of loan information, uniform standards for all creditors


Some Regulatory SpecificsSome Regulatory SpecificsSome Regulatory SpecificsSome Regulatory Specifics

Definition of Business Day: Two New Definitions

1. Loan Estimate – within 3 business days of application: Business day is whenever the creditor is open to the public to carry on substantially all functions

2. Waiting Period for consumer receipt of Loan Estimate and Closing Disclosures will be calendar days, except Sunday and certain Federal holidays



• Tolerances are now called Variations

OLD NEW

ZERO Tolerance Includes affiliate charges, & fees paid to unaffiliated SSP that consumer cannot shop for

10% Includes charges paid to unaffiliated SSP selected from Creditors SSPL

NO Tolerance (N/A) Includes SSP shopped for by consumer

Prepaid Interest

Property Insurance Premiums

Escrow Amounts, reservesssp=settlement service provider

sspl=settlement service provider list



• “Variations” Special Alert

• For No Variation bucket, creditor must provide best information reasonably available to the creditor

• No Low Balling! Could get hit with a violation! (UDAAP)

• Changed Circumstance Still Applies –

• Similar to today’s rule

• May have some tweaks, stay tuned



• Written List of Providers

• Must be Provided

• At least one provider for each service the borrower may shop for

• Multiple providers permitted

• SSPL must be provided on a separate Sheet of paper

• May state the list is not an endorsement

• Must be provided with Loan Estimate

• There is a new model form



• Pre-Application Worksheets:

• Can still be provided

• Must include verbiage: “Your actual rate, payment, and costs could be higher. Get an official Loan Estimate before choosing a loan.”

• Minimum 12 point font or larger

• Must appear at top of first page

• Not required for advertising (yeah!)

• Up Front Fees Collection:

• No changes!



• Closing Disclosure Timing:

• Consumer MUST receive the form THREE Business Days before consummation!

• Seller must receive no later than day of consummation

• There are a few exceptions, like a bona fide financial emergency, but stay tuned, let’s see what secondary market dictates

• Creditor or Settlement Agent May Provide Closing Disclosure –

• However, Creditor has 100% of responsibility for this process, and liability for TILA violations



• Closing Disclosure Accuracy:• If the disclosure becomes inaccurate prior to closing, provide corrected at or

before consummation• Consumer still must be able to review it one day prior to consummation

• Certain changes will require a NEW Three DAY Reflection period:• Changes above APR tolerance

• Change in Loan Product

• Addition of pre-payment penalty

• Changes Post-Closing Requiring Revised Disclosure:• Event related to settlement 30 days after closing resulting in amount paid by consumer

and/or seller (re-disclose within 30 days after learning of event)

• Non-numeric clerical errors: within 60 days after consummation

• Variation Violation: Re-disclose and refund within 60 days after consummation



• Itemization of Fees and Charges:

• Reversal from 2010

• No more bundling of settlement service fees including title insurance

• Fees and charges listed alphabetically

• Old HUD Line Numbers gone!

• Old GFE Boxes gone!

• Refer to new forms on the CFPB website:

http://www.consumerfinance.gov/regulatory-implementation/tila-respa/


PenaltiesPenaltiesPenaltiesPenalties

• Penalties and Liability:

• $4,000.00 per violation

• Actual damages and attorneys’ fees

• UDAAP (The sky’s the limit) Remember? Must use information reasonably available to make disclosures – no low balling!


Implementation Concerns Implementation Concerns Implementation Concerns Implementation Concerns ---- SettlementSettlementSettlementSettlement

• Increased Time for Closings

• Responding to question and concerns within the three day window for review prior to closing

• Now have 5 pages to explain at closing and may increase questions

• Settlement Agent training will be paramount for us, a big initiative and undertaking

• Increased cost to close


Impact on Lenders, Title Industry, AFBAsImpact on Lenders, Title Industry, AFBAsImpact on Lenders, Title Industry, AFBAsImpact on Lenders, Title Industry, AFBAs

• Implementation - Lender Concerns:• Substantial technology changes

• Reliance on third party providers

• Testing and Training

• Second reviews for a while (slow down in process?)

• Increased cost

• Good News:• All in APR on Hold for now

• Fair amount of time to implement

• Limited reasons for re-disclosing prior to closing


Impact on Lenders, Title Industry, AFBAsImpact on Lenders, Title Industry, AFBAsImpact on Lenders, Title Industry, AFBAsImpact on Lenders, Title Industry, AFBAs

• Implementation - Title Industry Win and Concerns:

• Owners Title Insurance can be labeled as optional (CFPB abandoned “Not Required”)

• K&L Gates notes that the new rule will cost settlement agents $800.00 per employee and a 20% increase in yearly software fees

• Implementation – AFBAs

• Fees charged by creditors affiliates in Zero Variance, Loan Estimate must be actual charge

• Affiliates included on SSPL, however, be careful of “referral”


Where are we and where do we go from here?Where are we and where do we go from here?Where are we and where do we go from here?Where are we and where do we go from here?


Developing Your Roadmap to ImplementationDeveloping Your Roadmap to ImplementationDeveloping Your Roadmap to ImplementationDeveloping Your Roadmap to Implementation

I. Self Assessment

II. Third Party Vendors

III. Resources for Information

IV. Scope of Project and Time Line

V. Project Plan

VI. Policies and Procedures

VII. Communication

VIII.Training

IX. Self Testing and Buttoning Up Loose Ends

X. Affirmation!


Self AssessmentSelf AssessmentSelf AssessmentSelf Assessment

• Before digging in, reflect back on the most recent large scale implementation project and other projects from the past and ask yourself, what worked well and what did not, what were the problems and how can they be avoided this time around? What would you do differently this time around?

• 7 Rules (including QM) – Jan. 2014

• RESPA – New GFE 2010

• What internal human resources are available?

• If internal resources are not adequate, are there funds for a consultant or outsourcing?

• What industry partners can you rely on? Vendors, Trade Groups…


Third Party VendorsThird Party VendorsThird Party VendorsThird Party Vendors

• Ensure you properly screen your third party vendors and consultants in compliance with CFPB Guidance 2012-03 http://files.consumerfinance.gov/f/201204_cfpb_bulletin_service-providers.pdf

• Ensure your expectations are communicated clearly to your vendor and make sure you clearly understand the ability and reality of the expectations being agreed to by your vendor


Resources for InformationResources for InformationResources for InformationResources for Information

• CFPB – Implementation Page for TILA/RESPA

http://www.consumerfinance.gov/regulatory-implementation/tila-respa/

• CFPB Implementation Readiness Guide - was for the new January 2014 rules but the spirit and questions are applicable :

http://files.consumerfinance.gov/f/201307_cfpb_mortgage-implementation-readiness-guide.pdf

• Investors

• Trade Groups local and national http://www.mbaa.org/Compliance

• National Law Firms

• Consultants

• Software Vendors (LOS, Forms, compliance solutions, etc.)

• Trade Journals and newsletters (Be careful of blogs and the quality of information being posted, know your sources)

• Peer Groups


Scope of ProjectScope of ProjectScope of ProjectScope of Project

• Determine your time line; the rule is effective with applications taken on or after August 1, 2015

• Who are you relying on in order to be compliant? LOS Software, Forms vendors? How are you monitoring and tracking progress? Do you have a plan B?

• Do you have a budget to work with in?

• Consider adequate time for testing, corrections, retesting and developing temporary workarounds, monitoring for final fixes

• What research do you need to complete?

• What policies and procedures will you need to create?

• What is your training plan?

• How will you communicate to your employees, industry partners?

• What will your environment be like on the day you go live?

• TESTING: This is a critical component for a successful implementation!


Project PlanProject PlanProject PlanProject Plan

• Develop a step by step project plan:• Break tasks into groupings by category, for example, research, policies.

procedures, LOS & forms provider management, communication, training, etc.. If applicable, assign an owner or team leader for that group, assign a project manager to oversee the entire project

• Have frequent meetings with your project team, report out each status and communicate show stoppers, brainstorm how to overcome the showstoppers, develop further tasks on the project plan as needed

• Do a gap analysis: Where are the holes in your process? IT? Process and workflow? Staffing? Closing Agents? How should it work versus how it is really working? Analyze before, during and after implementation


Policies & ProceduresPolicies & ProceduresPolicies & ProceduresPolicies & Procedures

• Ensure you clearly understand the regulation and requirements

• Develop policies and procedures for all areas impacted, for example:• Once you determine who will prepare the Loan Closing Disclosure, how you will

monitor, track and take corrective action, document this into the applicable policy (Service Provider Management, Compliance Management System, TILA/RESPA Policy, etc.)

• How will you protect the consumer from bad business practices, egregious errors?• Procedures must be practical, compliant, and easy for staff to understand and follow

through on

• A word of caution when using templates: • Often templates build in things you do not do or recognize at your company, and if

you fail to omit these items, when the regulators want you to show how you are complying – it could make for an awkward and dangerous short cut; however, if used to help you format a policy you are building from scratch, used as a resource and not a template per se, it could be beneficial


CommunicationCommunicationCommunicationCommunication

• Keep your Board of Directors and employees informed

• Consistently educate your employees so their knowledge develops over time and it is not a shock on the day of implementation

• Schedule regular calls with your LOS and Forms Provider to ensure the project stays on course

• Educate your closing agents! Keep in communication with them and urge them to be working out software solutions NOW!

• Consider the impact to your employees: This is a very big change

• Consider the impact to your customers, how will you communicate the changes?


TrainingTrainingTrainingTraining

• Training will make or break your implementation!• Develop guides, tools and hands on training for your employees

• Consider SMEs! Subject Matter Experts on staff who will be there at implementation to provide guidance and support to your staff, these folks likely will be part of your project team

• Have a help desk email where you can collect and respond to daily questions and develop an FAQ for your company’s employees to refer to.

• Often, based on the questions, you will find opportunities for improvement or further training

• Problems? Of course! But that is OK, they too are opportunities for improvement

• How will you ensure your Loan Originators are properly equipped to educate your customers?


SelfSelfSelfSelf----Testing & Buttoning Up Loose EndsTesting & Buttoning Up Loose EndsTesting & Buttoning Up Loose EndsTesting & Buttoning Up Loose Ends

• Once everything is in place, self test - Develop checklists of how things are supposed to work and then audit

• Not going according to plan? That’s OK, review and determine what needs to fixed or if further training is needed, perhaps something can be streamlined

• Often once a new task is implemented, compliance/risk staff or the production employees will think of something you never imagined, that could help improve the task, or make you aware of further risk that needs to be buttoned up

• Work with your QC department to include the changes in their loan review checklists and in their monthly audit reviews

• Conduct initial discretionary audits to ensure everyone is complying

• Implement automated solutions to check on compliance (i.e.: Mavent, Compliance Ease, Doc Magic’s Loan Detail Report, etc.)


Affirmation!Affirmation!Affirmation!Affirmation!

• However you can get it!• Attend post implementation seminars, webinars, conference calls,

conferences, how do you match up?

• Talk with investors, peers, attend meetings through local trade groups, how do you compare?

• Self Test: Use the CFPB Examination Manual to test your program!

• HINT – when the updated examination manual is released, use this as one of your resources when developing your polices, procedures and self testing!


No worries, you got this! No worries, you got this! No worries, you got this! No worries, you got this! And we will be right with you, every step of the way!And we will be right with you, every step of the way!And we will be right with you, every step of the way!And we will be right with you, every step of the way!


Questions?Questions?Questions?Questions?

Feel free to contact your Account Manager directly,

or email us at:

[email protected]


AcknowledgementsAcknowledgementsAcknowledgementsAcknowledgements

• The compliance department is still in the process of reviewing the details of the regulation and commentary. This presentation is a high level review that emphasizes the large scale changes. This is the first Module of a series of Modules that will be provided for our TPO Clients.

• Resources used in researching information for this presentation include: The CFPB: www.consumerfinance.gov, October Research, K&L Gates, Old Republic National Title Insurance Company, Wolters Kluwer and the Mortgage Bankers Association


DisclaimerDisclaimerDisclaimerDisclaimer

This information is for use by mortgage professionals only and should not be distributed to or used by consumers or other third parties. This should not be construed as legal advice. Consult your legal counsel and/or compliance officer for any interpretation or any operational changes necessary to support the RESPA/TILA rule and penalties for failing to do so.


Documents

CFPB Update: RESPA/TILA Rule - Merrimack Mortgage TPO Update RESPA TILA Rule(1).… · CFPB Update: RESPA/TILA Rule Module One: Getting Ready • Understanding the Past to Understand