There is a major storm moving toward credit union mortgage lenders and it will arrive Aug. 1.
That is the date the RESPA-TILA Integrated Mortgage Disclosures Rule will go into effect.
The new rule will usher in a complete change to the disclosure forms sent to borrowers as they close their mortgages.
These changes were high on the minds of mortgage professionals earlier this year.
When Credit Union Journal asked industry mortgage insiders in March what they thought was the most important current issue in the home loan space, they all responded: "TILA/RESPA." (RESPA is short for Real Estate Settlement Procedures Act.)
And Gaye DeCesare, president and CEO of Compliance Assistance for Credit Unions said the TILA/RESPA integrated disclosures are still the No. 1 compliance challenge facing credit unions today. (COMPASS 4 CUs is a wholly owned subsidiary of $327 million-asset Belvoir Credit Union of Woodbridge, Va.)
Edward Kramer, EVP, regulatory affairs for Minneapolis-based Wolters Kluwer Financial Services, said the pace of regulatory change has been extremely swift and challenging for many financial institutions
"I feel for the credit unions and the community banks that have had trouble keeping up with the pace of regulations," Kramer said. "TILA/RESPA is less than 60 days away, and I am so happy I am not a credit union. These changes are really unprecedented, and the changes impact lenders' entire mortgage operation."
Why Such a Storm?
The Consumer Financial Protection Bureau issued the RESPA-TILA Integrated Mortgage Disclosures Rule. It 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.
According to Kramer, the rule governing the new integrated disclosures is "long and complex" and encompasses "so many changes."
"Integrating what formerly were two different documents is very difficult," Kramer said. "For the consumer it will be good because the form will be clear and understandable, but the preparation has been very complex. It has meant hundreds and hundreds of changes."
The American Bankers Association estimated a significant percentage of banks would not be ready on the Aug. 1 implementation date, Kramer noted.
In addition to the sheer complexity of getting the documents ready to go, DeCesare pointed out there is a big issue with the manner in which lenders must switch from the forms they are using now to the new ones.
"Given the way the regulation is written, credit unions cannot start using the new form until Aug. 1, but we have to start using it on Aug. 1. There is no live testing, which is a real concern," said DeCesare. "If an application is in process when the clock strikes midnight on July 31, it has to continue on the old system, while a new application taken the morning of Aug. 1 has to be on the new system. So credit unions will have to run dual systems, and no one can be sure if it will all work."
DeCesare also noted that there are several types of loans to which the new rules do not apply, meaning those will have to use the old forms. "The CFPB says financial institutions cannot use the new form for those types of loans, which makes it unnecessarily difficult. The transition will be very messy and it should not have to be."
Kramer said nearly every financial services trade association spent the past few months calling on the CFPB to allow a delay in implementation until Dec. 1 or Jan. 1, "but [CFPB] Director [Richard] Cordray said financial institutions had 23 months to get ready, so the Aug. 1 date stands."
The next effort by the banking trades was asking for the CFPB to allow for lesser enforcement if the lender gave a good faith effort to comply. That effort similarly fell short.
"If you are not ready to comply on Aug. 1, you are going to have a problem," Kramer declared. "Even blaming a vendor is not sufficient because the prudential regulator will say the institution should have managed its vendor relationships better."
According to Kramer, most of the large institutions will be ready because they use vendors that are ready. He noted Wolters Kluwer developed a solution known as "Compliance One," which combines the new forms with changes to the loan origination system.
"There is a significant number of financial institutions that use Compliance One and were ready to go in March. Those institutions with hundreds of compliance people also will be ready," he predicted. "There are numerous compliance consulting companies out there, but what about title companies are they trained on all the needed document and workflow changes? There is a lot that has to go on. Some vendors are not releasing their software until June, which does not give a lot of time for testing."
If a mortgage lender is not compliant on Aug. 1 and books a loan, that borrower will have legal options, Kramer noted. "If that person cannot pay the loan a couple years later, an attorney will look to see if the institution was compliant."
Wolters Kluwer has developed a web page offering information to credit unions and other financial institutions about TILA/RESPA.