Beware hidden process changes in CFPB's new disclosure rule.

AuthorPry, Carl G.
PositionCOLUMNS: THE BRIEFING - Consumer Financial Protection Bureau - Column

LENDERS ACROSS THE COUNTRY are beginning to update their mortgage processes to meet the Consumer Financial Protection Bureau's (CFPB's) new Integrated Disclosure rule. A brief reading of the rule may tempt lenders to conclude they only need to change out a few forms. In fact, the rule's impact goes far deeper, involving business processes that must be reworked under a tight deadline of Aug. 1, 2015.

The most visible portion of the rule replaces the principal mortgage disclosures used today. The new Loan Estimate form will replace the Good Faith Estimate (GFE), required by the Real Estate Settlement Procedures Act (RESPA) and the early disclosure required by the Truth in Lending Act (TILA). In addition, the new Closing Disclosure will replace the HUD-1 Settlement Statement required by RESPA and the final disclosure required by TILA.

It would be a mistake, however, to believe that all this rule does is replace old disclosures with new ones. This is not merely a document issue. It cannot be handled simply by contacting vendors to make sure systems produce the new paperwork instead of the old.

The situation is far more complex. The Dodd-Frank Wall Street Reform and Consumer Protection Act mandated the CFPB to combine the requirements of RESPA and Regulation Z into one set of unified disclosures. Note that regulations are usually drafted to implement the requirements of a single statute, not multiple ones, and for a good reason: There are often small but significant differences between each statute's requirements.

This case is no different. RESPA and TILA both deal with mortgage loans, but their rules differ on coverage, timing and liability. One rule does not take precedence over the other, because the CFPB is expressly permitted to prescribe disclosures that "may apply to a transaction that is subject to both or either provisions of law."

As a result, the new rule requires several significant changes in business processes.

Coverage can vary

A mistaken assumption about the new rule is that lenders can completely do away with current disclosure forms on Aug. 1. Unfortunately this is not the case.

Loans for manufactured housing, for example, continue to require Regulation Z disclosures. This example arises because RESPA applies to consumer-purpose loans secured by residential real property, whereas TILA's mortgage provisions apply to consumer-purpose loans secured by one-to-four-family residential structures. Note the difference--real property...

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