Credit unions must act now to prepare for the Consumer Financial Protection Bureau's (CFPB) combined disclosure mortgage rule, Jon Bundy, CUNA Mutual Group regulatory compliance manager, told a CUNA Lending Council Conference breakout session audience Tuesday in San Diego.
The integrated disclosure rule—which stems from the Dodd-Frank Act’s changes to the Truth in Lending Act (TILA) and Real Estate Settlement Procedures Act (RESPA)—directly affects the people, processes, and technology credit unions use to support their lending operations.
“This is the largest mortgage lending regulatory compliance change seen by credit unions in recent times,” Bundy said. “Specifically, the rule will impact credit unions’ relationships with their system, document, and service providers—and most importantly, their members and credit union staff.”
CFPB issued the rule in November 2013 to simplify and improve the disclosures consumers receive when applying for and closing on mortgage loans. The TILA/RESPA rule becomes effective Aug. 1, 2015.
The new disclosures aren't merely replacing or combining existing disclosures, Bundy emphasized.
“The regulations require loan disclosures to change dynamically to reflect each borrower’s unique loan features, which means the new documents will have new data elements, calculations, and restrictions, and will incorporate dynamic elements based on loan type, loan feature, and loan purpose,” he said.
Because of the dynamic nature of the documents, thousands of permutations of the new disclosures might arise. To be fully prepared, credit unions must start making and documenting business decisions regarding the type of lending programs offered, and fees and services charged.
“Systems will need to be updated with new data fields and calculations, so it is critical that credit unions work with their system and document providers now to make sure they are on track,” Bundy said. “Procedures should be established to guarantee service providers and settlement agents walk in step with the credit union to address restrictions and timing limitations.”
The new Loan Estimate replaces the Initial TILA Disclosure and the RESPA Good Faith Estimate, which is provided three business days after the lender receives an application. The Closing Disclosure replaces the Final TILA Disclosure and HUD-1 Settlement Statement, which is provided three business days before closing.
“Verify with your document providers that they have you covered with the disclosures for your specific loan types, and make sure you get them in time to test and train,” Bundy said.
Lenders will need to work more closely with their service providers to know what fees will be charged for their services and to provide members accurate contact information for the providers.
“Start by examining the accuracy of your Good Faith Estimates compared with your HUD-1 and HUD-1A,” Bundy said. “Then, determine which services are appropriate to shop for and which are not. If the member cannot shop, make sure you know how much they will be charged because of the zero tolerance."
Credit unions will also need to develop a number of new processes with their settlement agents, such as determining how to guarantee timely delivery of the Closing Disclosure and who will deliver a corrected form should changes occur.
“Now is the time to determine who is in charge, what the credit union’s compliance resources are, how the credit union’s departments are impacted, and how your third-party partners can help,” Bundy said. "The compliance deadline is looming. It’s just around the corner. Don’t get caught unprepared; start having these discussions today.”