Why it matters

Federal regulators said they don’t expect perfection from banks trying to comply with the new mortgage disclosure requirements but will not turn a blind eye with regard to enforcement. In letters to industry groups and official guidance to supervised institutions, the Consumer Financial Protection Bureau (CFPB), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC) explained they are looking for “good faith efforts” to comply with the updated integrated Truth in Lending Act (TILA) and Real Estate Settlement Procedures Act (RESPA) mortgage disclosures in recognition of “the scope and scale” of the technological shift that lenders must undertake. The changes—which took effect October 3—require lenders to switch to new “Know Before You Owe” forms after more than 30 years of using the old disclosure forms. The regulators’ substantially identical communications attempted to assuage concerns about implementation of the integrated disclosures but did not create a formal safe harbor or promise a grace period before launching enforcement actions, as hoped for by the industry. Examiners will consider “the institution’s implementation plan, including actions taken to update policies, procedures, and processes; its training of appropriate staff; and its handling of early technical problems or other implementation challenges,” the letters said.

Detailed discussion

In 2013, the Consumer Financial Protection Bureau (CFPB) released a final rule establishing new mortgage disclosure requirements for lenders. Mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act, the new disclosures replaced existing forms that were used to comply with the Real Estate Settlement Procedures Act (RESPA) and the Truth in Lending Act (TILA) for more than 30 years.

The TILA-RESPA Integrated Disclosures (TRID) feature two new “Know Before You Owe” forms. Pursuant to the final rule, lenders must provide borrowers with two forms: a three-page Loan Estimate and a five-page Closing Disclosure. Originally slated to take effect August 1, 2015, the CFPB agreed to an extension following an “administrative error” in its promulgation of the rule.

But with the effective date around the corner and many lenders struggling to manage their TRID implementation, industry representatives continued to push for some form of a grace period. Federal regulators, however, declined to adopt a formal delay or grace period.

The agencies said, however, that they did not expect perfection. The mortgage industry “needed to make significant systems and operational changes to adjust to the requirements of the rule,” the regulators acknowledged, requiring extensive coordination with third-party vendors. The industry has dedicated “substantial resources” to understand the requirements, adapt systems, and train affected personnel.

Recognizing the “scope and scale of changes necessary for each supervised institution to achieve effective compliance,” the regulators indicated that initial examinations for compliance will evaluate the compliance management system and “overall efforts” to achieve compliance. “Examiners will expect supervised entities to make good faith efforts to comply with the [TRID rule’s] requirements in a timely manner,” according to the regulators’ communications. “Specifically, examiners will consider: the institution’s implementation plan, including actions taken to update policies, procedures, and processes; its training of appropriate staff; and, its handling of early technical problems or other implementation challenges.”

This approach is similar to how the agencies handled initial examination for compliance with the mortgage rules that became effective in January 2014, some of them said. “The Bureau’s experience at that time was that institutions did make good faith efforts to comply and were typically successful doing so,” the CFPB wrote. The CFPB took its first enforcement action under those rules in October 2014.

In separate communications to their sellers and servicers, Fannie Mae and Freddie Mac (the GSEs) issued guidance to the same effect, saying they were doing so at the direction of their regulator, the Federal Housing Finance Agency. The GSE guidance went on to say that the GSEs do not intend to exercise contractual remedies, including demanding repurchase of mortgage loans, for noncompliance with the new TRID rule except in the following two limited circumstances:

  1. if the required form is not used at all; or
  2. if a particular practice would impair enforcement of the note or mortgage or would result in assignee liability, and a court of law, regulator or other authoritative body has determined that the practice violates TRID.

To read the CFPB’s letter to the American Bankers Association, click here. To read the OCC’s letter to the American Bankers Association, click here. To read the FDIC’s Financial Institution Letter FIL-43-2015, click here. To read Fannie Mae’s Lender Letter, click here. To read Freddie Mac’s Industry Letter, click here.