‘You’ve Got to Be Kidding Me!’

Mortgage Disclosure Improvement Act regs leave much to be desired.

April 14, 2011

During my 25 years of working with credit unions, I’ve had more than my share of “you’ve got to be kidding me” moments.

But over the past three years, these moments seem to be all I have. The unusual has become the norm and the bizarre has become commonplace.

Let’s look at one example so you can better understand your compliance staff’s stress and the need to deal with regulatory uncertainty: The Mortgage Disclosure Improvement Act (MDIA), which was passed by Congress in 2008 and went into effect Jan. 30, 2011.

MDIA requires certain disclosures to be made for variable-rate loans secured by a dwelling or real estate. Some highlights:

  • Lenders must disclose to borrowers the amount of principal and interest, the amount of any escrow, and the total amount they will pay for a loan on a monthly basis as well as at the beginning of a loan, the maximum in five years, and the maximum ever;
  • There’s no requirement to disclose the timing or amount of payments; and
  • Amounts required to be disclosed are calculated differently than the original rules.

Seems straightforward, right? Not so fast.

In September 2010, as the January 2011 deadline loomed, the Federal Reserve Board published interim rules for the MDIA requirements. These rules require the replacement of what’s known as the “payment schedule” (which tells the borrower the amounts and timing of payments) with the disclosures described previously.

It seems like a simple swapping out of one disclosure with another. But in reality, it’s no such thing.

Left unchanged is a disclosure called “total of payments,” defined as “the sum of the payments disclosed [in the payment schedule].”

See the problem? There’s no disclosure of the “total of payments” anymore! So in December 2010, the Fed issued interim rules clarifying the September interim rule to explain how credit unions would calculate the “total of payments” even though they no longer disclose a “payment schedule.”

The interim rules state the lender should calculate the “total of payments” as if there’s a “payment schedule.”

Problem solved, right? Not quite.

Many credit union data processing systems can’t calculate and disclose both the new MDIA disclosures and the old “payment schedule” disclosures. Thus, your compliance folks are running around with their hair on fire, with a short compliance timeframe, and difficult problems to solve. Again.

You’ve got to be kidding me!

So what can we do about this regulatory uncertainty?

  • Accept that regulatory change is constant and the timeframe for compliance will be short.
  • Allocate sufficient resources and attention to solve problems. There are few simple solutions to complex problems—staff time and money are required.
  • Work with outside service providers. The example described previously shows that your data processor will likely have an important role in solving compliance problems.
  • Take opportunities to influence the regulators. They ask for comments because they’re required to do so by law, but also to understand the impact of the proposed regulations. It’s often your only chance to be heard.
  • Conduct strategic planning with compliance changes and their influence on business in mind.

I don't know what the next 25 years will bring, but I do know we haven’t seen our last "you've got to be kidding me" moment.

Whatever the issue, be prepared. No kidding.

BILL KLEWIN is director of regulatory compliance at CUNA Mutual Group, Madison, Wis.