WASHINGTON — America’s Credit Unions is urging the Consumer Financial Protection Bureau to overhaul federal mortgage disclosure rules to reduce compliance costs and closing delays, particularly for smaller credit unions, while retaining what the trade group called meaningful consumer protections.
In an Aug. 10 letter responding to the CFPB’s Request for Information on Promoting Access to Mortgage Credit, America’s Credit Unions said it supports a “tailored, risk-based framework” for the TILA-RESPA Integrated Disclosure, or TRID, requirements.
The association, which represents credit unions serving more than 146 million members, said the existing rules can impose disproportionately high costs on smaller institutions that have limited mortgage and compliance staffs and rely more heavily on manual processes and third-party vendors.
‘Important Benefits’
America’s Credit Unions said the Loan Estimate and Closing Disclosure provide important benefits and should remain central to the mortgage process. But it called on the CFPB to focus its review on eliminating duplicative information, simplifying technical requirements, expanding safe harbors and distinguishing between errors that materially affect consumers and technical mistakes that cause no harm.
Problems Cited
Among the problems credit unions have identified with the current rules, according to the letter:
- Redisclosure requirements can be triggered by minor fee changes that have no meaningful effect on the loan or consumers’ understanding of the transaction.
- Complex tolerance and changed-circumstance requirements can create additional documentation, even when changes result from factors outside a credit union’s control.
- Credit unions must maintain detailed records and calculations primarily to demonstrate technical compliance when borrowers have not been harmed.
- Borrowers can receive multiple, nearly identical Loan Estimates, Closing Disclosures and other documents.
- Corrected disclosures may be required even when a change benefits consumers or would not affect their decision.
- Mandatory waiting periods can postpone closings even when borrowers understand the transaction and want to proceed.
The association said those requirements can force credit unions to change closing dates, extend rate locks, reschedule settlements and delay funding while increasing costs for both lenders and borrowers.
Calls for Materiality Standard
America’s Credit Unions recommended that the CFPB base any TRID modernization on a “materiality-based standard,” under which additional disclosures, waiting periods and heightened requirements would generally be reserved for changes that could affect a borrower’s decision.
Those could include changes to the annual percentage rate, loan product, prepayment penalties, cash required to close or other substantive loan terms.
Minor technical changes or changes favorable to consumers should not trigger the same procedural requirements if they do not affect pricing, terms or consumers’ understanding of the transaction, the group said.
Recommendations Offered
Among the changes America’s Credit Unions recommended:
- Create a safe harbor for minor or technical disclosure errors that do not affect pricing, loan terms, cash to close or consumers’ understanding.
- Simplify correction requirements for nonmaterial formatting, rounding, labeling and calculation errors.
- Provide clearer guidance on what constitutes a valid changed circumstance.
- Streamline documentation of changed circumstances and issuance of corrected Loan Estimates.
- Provide greater tolerance flexibility for government and third-party charges that can be difficult to determine within three business days of an application.
- Expand cure periods when tolerance violations result from third-party fee changes or circumstances outside a credit union’s control.
- Develop model forms, standardized calculations and compliance examples geared toward smaller institutions.
- Consider regulatory relief based on mortgage-origination volume, asset size or another measure of institutional complexity.
America’s Credit Unions said such changes could reduce compliance expenses and closing delays while allowing credit unions to devote more resources to member service, homebuyer education, product development and responsible mortgage lending.
Service Provider Lists
The association also asked the CFPB to change how fees are treated when borrowers choose settlement service providers from a lender’s Service Provider List.
Under current rules, the association said, those fees are generally treated as if the lender selected the provider and remain subject to applicable tolerance requirements.
America’s Credit Unions argued that when consumers affirmatively choose among qualified providers, the fees should instead be treated as consumer-shopped services. It recommended that such fees be disclosed in Section C rather than Section B of the Loan Estimate and Closing Disclosure.
The change would better reflect consumer choice, encourage lenders to maintain broader provider lists, promote competition and reduce unnecessary tolerance cures, the association said.
CUSOs Should Receive Same Relief
America’s Credit Unions also urged the CFPB to ensure that any regulatory relief provided to credit unions extends to mortgage credit union service organizations.
Many credit unions jointly own mortgage CUSOs that provide services through private-label arrangements rather than maintaining fully staffed mortgage departments internally.
The association said credit unions using those shared-service arrangements should not lose regulatory relief simply because mortgage functions are performed by a CUSO.
“Regulatory treatment should follow the underlying mortgage activity and risk profile, rather than the organizational structure used to deliver the service,” the association said.
Closing Delays Also Targeted
The trade group also asked the CFPB to review TRID timing requirements.
While those rules generally do not prevent qualified borrowers from obtaining mortgages, America’s Credit Unions said they can delay closings and increase costs when changes occur shortly before settlement.
The problems can be particularly significant in home purchases involving contractual deadlines, coordinated home sales, expiring rate locks or moving arrangements, the association said.
America’s Credit Unions acknowledged that consumers need adequate time to review mortgage disclosures but said the mortgage process has changed substantially since TRID was implemented, particularly as borrowers increasingly receive and review documents electronically. The association urged the CFPB to consider whether some disclosures could be provided earlier in the origination process.
