New Real Estate Closing Protocol from the Consumer Financial Protection Bureau (CFPB): Lenders Scramble to Comply and Posture for Position

New Real Estate Closing Protocol from CFPBThe CFPB has issued an order to launch the new real estate closing protocol on August 1, 2015. This change is as spontaneous as a rocket launch. The methods of implementation and ensuing changes for title companies and lenders is still uncertain. How difficult can it be to merge two independently designed government forms into one comprehensive, understandable document?  Clarity is a dear commodity in consumer lending. The affected players are a diverse group.  Small and large title companies, local, regional and national mortgage lenders and banks, second mortgage finance companies each needs to determine how they will comply. These changes affect standard lenders primarily on real estate mortgages.  Reverse mortgages, trailer homes, and lines of credit are exempt from these disclosure rules. Traditionally, lenders and title companies provided their own closing documents: truth in lending documents and HUD-1 forms respectively.  These two forms use different language and disclosure mechanisms to explain the real estate closing to the buyer. The Consumer Financial Protection Bureau mandate requires these two documents be merged into two uniform disclosure forms:
  1. The Loan Estimate must be provided to the consumer within three days of application.
  2. The Closing Disclosure must be provided three days prior to closing, and any changes restart the clock to earliest closing.
The closing document concerns the lending industry most. Large banks and national lenders have the ability to create in-house capacity to complete the forms and distribute them accordingly.  Smaller lenders do not have the staff or expertise to do so, thus relying on outsourcing or allowing the larger title company to accept responsibility for document production. The smaller titles, however, do not have the in-house capacity to produce these new forms and merge information with lenders either.  Will these facts create the necessity for mortgage lending consolidation, shoving the smaller lenders to the sidelines? How will any lender mitigate the risk of cyber criminals intercepting data during all these exchanges?  Will lenders ultimately need to buy in-house title company capacity? Lenders and title insurance providers worry about the professional liability issues resulting from this shared responsibility.  If lenders create documents outlining cleared title searches and associated fees, are they endorsing the professionalism of the title searchers? Are title companies endorsing the compliance and duty of the lenders when they prepare "Truth in Lending" type closing documents?  Will these questions require mutual hold harmless agreements?  What will they do to legitimate lawsuits concerning errors that ultimately do damage one party or the other? Lenders are concerned that the one form will not be consumer friendly, although intended to be.  How will a consumer track information flow to each constituent of the closing and on to a final merged document when fee nomenclature differs between the disciplines? Any time new procedures displace standard documents and protocols under the guise of simplification, all the original concerns rise up again.  Some stakeholders will exploit the confusion to increase market share, others will huddle in a corner waiting to see how things work out. Over several years, clarity may begin to rule once again when the language of fees and data becomes standardized, but now, the different languages babble towards confusion and unmerge-able data.  And compliance is a mere five months away.
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