Know Before You Owe Mortgages: A Game-Changer

Engage early in a rulemaking and make noise throughout the newly extended process.

June 11, 2012

The Consumer Financial Protection Bureau (CFPB) is set to issue its first set of proposed mortgage regulations this July.

One upcoming proposal—the integration of the Real Estate Settlement Procedures Act (RESPA) and Truth in Lending Act disclosures, part of the Bureau’s “Know Before You Owe” campaign—not only demonstrates one of the many forthcoming mortgage changes, it’s evidence that CFPB is changing the game when it comes to rulemaking.

Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), the bureau is required to issue a series of mortgage regulations this summer ranging from mortgage loan originator compensation and qualification and screening requirements to high-cost mortgages.

Among the July 2012 proposed rules will be a proposal to integrate Truth in Lending disclosures with RESPA’s good faith estimate and HUD-1 Settlement Statement.

In conjunction with issuing newly-integrated disclosures, the agency will be implementing new requirements stemming from the Dodd-Frank Act that govern these disclosures as well. In accordance with this act, CFPB must issue proposed rules by July 21, 2012, and finalize such rules by January 21, 2013, with an implementation date no later than 12 months thereafter.

In an effort to promulgate these new “integrated disclosure” rules, CFPB kicked off its “Know Before You Owe: Mortgages” initiative one year ago. The mortgages initiative is part of a broader Know Before You Owe campaign which also includes a review of credit card agreements and financial aid “shopping sheets” for prospective student loan borrowers.

Subscribe to Credit Union MagazineAll Know Before You Owe initiatives seek to provide consumers with easy-to-understand and comparable information.

As part of its mortgage campaign, the bureau has issued a series of prototype loan estimates and settlement disclosures to solicit online feedback from consumer and industry stakeholders. It also conducted one-on-one testing in locations throughout the U.S., resulting in numerous iterations of such disclosures (each named after flowering trees).

CFPB has called this the first step in its review, which will be followed secondarily this July with proposed rules.

By proposing rules after soliciting feedback, CFPB has changed the rules of the rulemaking game—and spectators need to pay attention.

Traditionally, public comments are sought after proposed rules are issued, pursuant to the Administrative Procedure Act. The bureau has tweaked this process (rightly or wrongly so; I’ll leave that to the referees) such that, in this case, these newly integrated disclosures have already taken shape before being formally proposed to the public.

And although there will be an opportunity to participate in the formal comment process once July comes around, CFPB’s approach makes one wonder whether they have already missed the bus.

There is evidence that CFPB will continue to use this game-changing approach in the future. Thus, my pep talk to credit unions and their trade associations is to make that extra first play count: Make a concerted effort to engage early in a rulemaking and continue to make noise throughout the newly extended process.

In other words, and in tribute to my Texas alma mater, “come early, be loud, stay late.”

LAUREN CALHOUN is a compliance manager at CUNA Mutual Group.