There was an unusual degree of consensus at a Congressional hearing on implementation of the new Truth-in-Lending (TILA) and RESPA Integrated Disclosure Rule (TRID).  All four individuals testifying on behalf of different housing industry interests overwhelmingly agreed that, while implementation of TRID should continue as scheduled on August 1, there should be a grace period for enforcement.

TRID was developed over several years and several incarnations by the Consumer Financial Protection Bureau (CFPB), and while each witnesses at the House Financial Services subcommittee hearing were generally complementary of the agency's work, all encouraged the committee to insist that a five month "hold harmless" period be put in place and that CFPB should not begin enforcement of the TRID rule until January 1, 2016. 

Cindy Lowman, president, United Bank, Mortgage Corporation, represented the American Bankers Association (ABA) at the hearing.  She said that TRID's objective of simplifying the disclosure process is worthwhile and commendable because the disclosure regimes developed under both TILA and RESPA "have swelled in complexity and volume to the point that borrowers are faced with so many documents to read, sign and initial that the process has become tedious at best and counterproductive at worst. True disclosure has become virtually meaningless."

Industry and consumer groups have sought for years to streamline, and simplify this process, she said and while CFPB undertook integrating the disclosures project in an open and responsive process, opportunities were missed in the process. The new forms remain lengthy and intimidating to consumers. The rules that lenders must follow are still confusing and difficult to apply and implementation will impose high costs on all lenders and consumers.

Both Lowman and Diane Evans, Vice President at Land Title Guarantee Company and representing the American Land Title Association (ALTA) stressed that lenders cannot operate alone in implementing the new rule.  Evans said in her discussions with stakeholders the one clear message was that collaboration between all parties involved in the mortgage loan was essential.  "The new timing and accuracy requirements," she said, "make it impossible for industry to continue to operate in their own silos."

Lowman said the new rules rework the entire disclosure infrastructure for mortgage transactions and dispense with 40 years of legal precedent. Implementation requires that lenders, their compliance software vendors, and other parties involved in the settlement process be given adequate time to ensure compliance and a smooth transition to the new regulatory regime. "New processes will be required for every bank, and these processes must be tailored to each product type and each jurisdiction across every state."

The rule does not provide for a "test period" or other mechanism to ensure that the new rules and the compliance software, employee training and other settlement service providers are prepared for the new regime.   In addition to banks and lenders, Lowman said, many other parties are affected by this regulation including realtors, appraisers, title companies, settlement agents, software vendors and, most importantly, the consumer. Should any of these parties not be fully compliant on August 1, all other parties will be suffer from a domino effect-with lenders bearing the brunt of the liability.

She said this may mean that stopping lending will be the only answer for the deadline.  "At my bank, we are still waiting for systems from our third-party providers and do not expect some before the August 1 deadline. This means, that as of the deadline, I will be able to take mortgage applications, but will not be able to close any loans where I do not have systems in place."

Several of the witnesses cited readiness surveys.  Linda Goodman, Director, Housing Finance Policy Center, The Urban Institute, cited an April study by Capsilon Corporation which found 41 percent of mortgage lenders were not ready for the implementation and only 12 percent felt "very prepared."

Lowman said ABA found that 74% of banks are using a vendor or consultants to assist with TRID implementation; however, only 2% of the compliance systems had been delivered by the month of April (when the survey closed), and 79% of banks could not verify a precise delivery date, or were told that they would not receive systems before June or even into July.   Those dates do not take into account, she added, the need to implement the new processes and forms, train staff, and test for quality assurance before bringing them on line.

Evans said 92 percent of ALTA members said they were on schedule for implantation or were confident they would be ready by August 1, and more than half had either updated their software or scheduled a demonstration.  However she was concerned because much of the final training and implementation will take place during the busiest time of the year for real estate closings as thousands of families relocate prior to the new school year.

The witnesses referenced continuing concern over the "three-day rule" which requires a waiting period between issuing the "Closing Disclosure" or CD and the closing.  Any major change to the loans terms such as from a fixed-rate to an adjustable or a change in the APR requires an additional three business day wait.  Lowman pointed out that a delay in settlement could be a huge imposition to a buyer. "In more cases than not, the buyer planned a whole schedule around an expected settlement date, which likely involves moving homes and finalizing the sale of their current home. Having to push back the settlement date often has large costs to consumers. It can the lead to rate lock expirations, missed deadlines in back-to-back settlements, or in some cases could even lead to cancellation of entire transactions.

Chris Polychron, President of the National Association of Realtors® (NAR) said that while the three-day period can be waived it can be done only for a "bona fide financial emergency" which, while sounding reasonable on its face, is actually extremely limited to items such as an imminent bankruptcy and not to situations such as increased consumer costs or lost downpayments.

Goodman said, "To the consternation of many lenders, the rules seem to be silent on what happens when the closing date is significantly delayed. For example, the rule states that if the interest rate was not locked at the point of origination, when the rate is locked, a new Loan Estimate must be provided within three days. It is unclear if a borrower can be charged for a new rate lock if the borrower contributed to a delay."

Another concern, according to Polychron, is that CFPB has made the lender ultimately responsible for the CD and its contents. This has led to many lenders adding a requirement that any changes to the CD be approved by the lender but that ultimate lender may not be present at the closing or even in the same time zone which could cause significant delays.

Evans raised another issue with the TRID rule specific to title insurers; that it prohibits them from accurately disclosing the actual cost of title insurance policies. CFPB has created a formula which-in most states-incorrectly discloses the cost of title insurance, she said.  In most states when both a lenders policy and an owner's policy are purchased concurrently, the lender's policy is typically issued at a discounted rate. However TRID requires disclosure of the lender's premium at its full rate then requires the owner's premium to be inaccurately disclosed on the forms.  This is, she said, the only inaccurate information on the new disclosures.

In advocating for a delay in enforcement Lowman said was notable that Congress did not mandate a deadline for implementation of new rules, clearly demonstrating that there was no urgency to action and Polychron cited as a precedent the "break-in period" used by HUD when it revised RESPA in 2010. 

He said that given the complexity of real estate transactions, no one can know for sure the degree to which the new rule will increase the number of delays until the rule takes effect and is implemented.  During a "restrained enforcement period, industry would operate under the rule and use the new disclosure forms but be held harmless in terms of liability if acting in good faith. The industry and the CFPB can then collect data on problems and develop solutions to minimize costly and harmful impact on consumers.

And Goodman concluded, "Ultimately, TRID, if implemented properly, should result in a vast improvement in the consumer experience. Let's give the lenders the breathing room they need to do this right."