Industry Reps say RESPA/TILA Should Wait for Dodd-Frank Implementation

Representatives of the Mortgage Bankers Association (MBA), and the American Bankers Association (ABA) told the House Financial Services Subcommittee on Insurance, Housing and Community Opportunity it would be a mistake to rush new mortgage disclosures into use while the president of the American Land Title Association (ALTA) appeared to suggest that a single form might not be such a good idea after all.  Bill Cosgrove, representing MBA, Brenda K. Hughes speaking for ABA, and Christopher Abbinante, president of ALA testified at a hearing titled ""Mortgage Disclosures:  How Do We Cut Red Tape for Consumers and Small Businesses?"

Cosgrove told committee members that the RESPA/TILA disclosures directly impact both lenders and their customers and, if done right can help borrowers make better decisions about what they can and cannot afford and make it easier to compare estimated costs with actual costs at closing.  The two disclosures, split as they were between HUD and the Federal Reserve, never worked and diverged over the years.  "The CFPB's (Consumer Finance Protection Bureau's) "Know Before You Owe" initiative has the potential to finally sync up the information borrowers receive."

He urged lawmakers take their time in finalizing the forms.  Their development has benefited from multiple rounds of feedback from the public, he said, but they should not be finalized until the other Dodd-Frank rules impacting the forms are also complete.  The CFPB alone is currently working on the "Ability to Repay" rule and the definition of Qualified Mortgage as well as rules dealing with high cost loans, mortgage originator compensation, and servicing rule all of which will have a significant effect on disclosure requirements.  

The rules accompanying the forms should also be developed with an eye toward protecting consumers without unwittingly harming the market and the borrowers they are intended to serve.  And when both forms and rules are complete they should be rolled out in an orderly manner that is respectful of the considerable commitment required from small businesses to ensure compliance.

"Past efforts to improve the disclosures have been uncoordinated and ultimately failed to achieve their objectives.   Yet small businesses continue to spend untold sums to implement the most recent RESPA rule, which is about to be eclipsed by the CFPB's latest efforts.  In the end, those costs are borne by our borrowers - your constituents - who then pay more for their mortgages," Cosgrove said.

Speaking for the Bankers Association, Hughes said, "We believe the RESPA and TILA forms are convoluted and complex - and must be fixed.  It is common knowledge that consumers either ignore these disclosures or don't fully grasp the information contained in them.  Simple, clearer forms have long been a priority for all stakeholders."

Like Cosgrove, Hughes also expressed concern about the coordination and timing of new forms.  The CFPB is effectively rewriting rules that control the timing of the origination process, disclosures to consumers, and the resulting legal liabilities.  In such a massive undertaking the goal must be to achieve something workable and lasting.  "Rigid time frames should not trump quality," she said.

The ABA also feels that the new RESPA/TILA forms should be implemented in coordination with Dodd-Frank.  "It would be cumbersome, expensive, inefficient and confusing to finalize a merger rule without considering these other rules that must be implemented," Hughes said.  "It would result in erratic and never-ending amendments to our compliance systems.  Such a result is unwarranted and avoidable."

Abbinante took a different tack, suggesting that responsibility for completing the disclosures be split along operational lines.  He told committee members that, while ALTA supports simplified mortgage disclosures, there are a number of statutory conflicts between RESPA and TILA.  "It is not clear if these conflicts can be resolved by the Bureau or will require an act of Congress."

 "Lenders should continue to have responsibility and liability for preparing the part of the disclosure related to the loan costs, while settlement agents should continue to have responsibility and liability for preparing the part of the disclosure related to the settlement costs," Abbinante said.