cfpb twoCFPB gives mortgage lenders a Christmas present


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The Consumer Financial Protection Bureau gave lenders a post-holiday present — telling anxious bankers that they wouldn’t be held liable for most minor errors in loan processing and paperwork under the new “Know Before You Owe” rule.

The federal rule, which went into effect in the fall, stipulated that consumers must be given the new combined Closing Disclosure with all the charges, fees and line items three days before the closing, rather than at the closing. The rules were designed to give consumers more time to read the documents before signing, as a way to avoid what happened during the height of the housing boom, when unscrupulous lenders, title agents and realtors used the blizzard of paperwork to slip in higher interest rates and hidden fees. But they’ve ended up causing some disruptions in home lending and closings.

In a Dec. 29 letter to the Mortgage Bankers Association, the CFPB’s director, Richard Cordray, told the Washington, D.C.-based trade group that small paperwork errors and typos in key sections of the new disclosure rules, known as TRID, would not likely create a scenario where a private investor who buys a loan from a banker could sue the lender, or where the lender would face the regulatory wrath of the CFPB or the federal agencies that buy loans.

“We believe that the risk of private liability to investors is negligible for good-faith formatting errors and the like,” Cordray wrote to MBA president David Stevens. “We recognize that a certain level of minor errors in the early days of implementation is to be expected,” the agency director said. Cordray said that in the letter, the CFPB and the federally-backed loan re-purchasers such as Fannie Mae and Freddie Mac “are looking, in these early days, for good-faith efforts to come into compliance.”

Lenders, settlement agents, title companies and realtors have all been struggling since early October with the new federal disclosure requirements. Lenders had been seeing the average time to close a loan increase in some cases by as much as a week, costing borrowers money as they needed to pay more in loan lock fees to hold particular interest rates as delays in closings mounted up.

“Needless to say, we think this is a very positive development,” said Pete Mills, a senior vice president at the MBA said in a note this week to bankers after the CFPB’s clarification.

Last week, the National Association of Realtors reported that sales of existing homes plunged more than 10% in November, the slowest in 19 months, to a season-adjusted rate of 4.76 million, down 3.8% from a year ago. NAR Chief Economist Lawrence Yun said much of the decline was due to new regulations that are lengthening the time to closing, increasing the average time to 41 days from 36 days, and pushing a great deal of sales activity into December.

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