In less than four months, mortgage providers across the nation must be ready to meet new disclosure requirements.
And while a number of lenders and service providers say they are ready to start operating under the new rule by the Aug. 1 deadline, the task is so daunting that credit unions not already well underway with their preparations may be too late.
That is the message from CU mortgage insiders, all of whom quickly answered, "TILA/RESPA" when asked the most important current issue in the home loan space right now.
The Consumer Financial Protection Bureau issued the RESPA-TILA Integrated Mortgage Disclosures Rule, to take effect on Aug. 1. (RESPA is short for Real Estate Settlement Procedures Act.)
The new rule requires the use of two disclosures designed to help borrowers understand the impact of getting a mortgage: a Loan Estimate, which replaces the Good Faith Estimate and the initial Truth-in-Lending Disclosure; and a Closing Disclosure, which replaces the HUD-1 Settlement Statement and final Truth-in-Lending Disclosure.
Tim Mislansky, senior vice president and chief lending officer for $2.9 billion Wright-Patt Credit Union, Beavercreek, Ohio, as well as president of mortgage CUSO myCUmortgage, said the "biggest issue all lenders are dealing with" is the combined TILA/RESPA disclosure.
"These are the key documents in the closing process and the goal is to make them simpler and easier for consumers to understand. That is a worthwhile goal, but it is more complicated than just changing the disclosures — it impacts the whole business," Mislansky said.
Anita Domondon, VP of loan administration for Meriwest Mortgage, a subsidiary of $1 billion Meriwest CU, San Jose, Calif., said compliance continues to be a major challenge for the industry in 2015 — with the disclosures dwarfing the impact of the CFPB's "Qualified Mortgage" rule.
"QM was huge, but the combined TILA/RESPA forms will be even bigger," said Domondon. "I hope people have not forgotten about getting their forms ready because the critical dates will be very strict."
Domondon said a CU in the San Francisco Bay Area recently was told by its vendor that it will not be able to get the institution's forms compliant by the Aug. 1 deadline.
"I think the big credit unions are aware, in part because most vendors are proactive," she said. "If credit unions have not started the process by now, they had better look into outsourcing or a temporary solution immediately to get through this period."
Matthew Abbink, VP at CU Members Mortgage in Dallas, described preparing for the new integrated disclosures as a "daunting task."
"This will be a much more labor-intensive regulation to prepare for — much more than the Qualified Mortgage rule — because of all the data fields," Abbink appraised. "From an operational standpoint, that is the biggest development on the roadmap."
Abbink said CUs need to be preparing now with their vendor partners. He expressed a concern that there is a potential for a gap in communications between lenders and the general public and/or real estate brokers.
"Final settlement statements are going to have to be prepared and delivered to the home purchasers three days or more before the close," Abbink explained, noting that means there cannot be last-minute changes without possibly triggering a new, thee-day waiting period. "It is not exactly like a three-day right of rescission, but consumers do have three days to go over the documents."
Credit unions need to go over their processes to make sure there are no last-minute changes, Abbink noted. He said there also will be demands from the market for a fast close. As such, "There will not be flexibility in the closing dates as there has been in the past."
Abbink suggested mortgage lenders need to run parallel operations, rather than the traditional linear fashion, to compete in the new regulatory climate.
"The loan needs to be worked on by multiple parties at the same time, rather than waiting for one step to complete," Abbink said. "This will place demands on technology — having the solutions in place to handle all those steps, which brings increased costs that eventually trickle down to the home buyers."
Mislansky of myCUmortgage pointed out many CUs have spent years trying to build relationships with realtors, and have tried to meet real estate agents' needs for rush transactions.
"Turning around loans quickly will be difficult given the new three-day notification rules," said Mislansky. "The interested parties all have to understand all the ramifications, the Realtors, the title companies, the buyers and sellers, and the lenders."
Mislansky noted the CFPB recently proposed changes to part of the Qualified Mortgage rule to expand the small lender exemption and change "rural lender" definition.
He said changing the threshold from 500 mortgages to 2,000 mortgages would take a segment of the lending space and allow those shops to use the small lender exemption. It is estimated this change will help 10% of lenders, but Mislansky said the disadvantage is CUs would have to keep that loan on their books.
"How many loans can you keep on your books to take advantage of the small lender exemption before it catches the eyes of the NCUA?" he asked rhetorically.
The CFPB is "listening to concerns of small lenders," especially credit unions and community banks, according to Mislansky.
He said CFPB Director Richard Cordray has "consistently said small lenders did not cause the financial crisis," but Mislansky argued even Navy and Pentagon — two credit unions that are well above the $2-billion range Cordray cites as a cut-off between small and large — did not play a role in the financial crisis, either.
"All credit unions should get the benefits of the small lender exception," said Mislansky. "We all have the same charter; we all have the same purpose. We all are financial cooperatives owned by our members, and that should be important, not asset size. If I was at $1.9 billion and was growing I would have to not grow to avoid having to deal with a bunch of new regs. That is not good for the institution or consumers."