CFPB Seeks to Calm TRID Fears Without Granting Leniency

It's not the grace period the mortgage and real estate industries are clamoring for, but the Consumer Financial Protection Bureau is planning an announcement designed to placate fears of hasty enforcement of its new integrated disclosure rules that take effect in August.

The statement, expected sometime Wednesday, will say the CFPB takes into account good-faith efforts by lenders to come into compliance with the rules, according to a source familiar with the CFPB’s plans. The statement will echo remarks CFPB Director Richard Cordray made in September 2013 before a swath of regulations took effect in January 2014.

"[O]ur oversight of the new mortgage rules will be sensitive to the progress made by those lenders and servicers who have been squarely focused on making good-faith efforts to come into substantial compliance on time," Cordray said in remarks prepared for the North Carolina Bankers Association's 2013 American Mortgage Conference.

In other words, the CFPB considers both a lender's compliance with regulations and how it handles inevitable mistakes. By reiterating this philosophy, the agency is attempting to assure lenders they'll have an adjustment period to incorporate the new rules into their operations, while still avoiding being hamstrung by a prescribed policy granting leniency.

The CFPB did not immediately respond to a request for comment.

The CFPB's approach is similar to how it addressed enforcement of the ability-to-repay and qualified mortgage rules that went into effect in 2014, said Ben Olson, the CFPB's former deputy assistant director for regulations, who played a leading role in crafting the language for the ATR, QM and disclosure rules.

"That speech did give people some comfort that the bureau wasn't going to hammer them," said Olson, who is now a partner at BuckleySandler. "There was no question that folks weren't getting a free pass on liability for ATR violations during that period, just that the bureau would look at good faith efforts towards compliance."

The bureau's guidance will be presented in the context of a statement outlining the circumstances in which a lender must generate a new Closing Disclosure, the source said.

There are only three changes to the new Closing Disclosure that require lenders to reissue the settlement statement and restart the three-day waiting period before closing — changes to the loan product, the addition of a prepayment penalty, or if the annual percentage rate increases by more than 1/8 of a percentage point. However, the APR trigger already exists in the Mortgage Disclosure Improvement Act's rules for the Truth-in-Lending disclosure in use today.

Cordray met with a bipartisan group of Congress members Tuesday to brief them on a number of topics, including the integrated disclosures rule known as TRID. He is also scheduled to speak to multiple industry groups on Wednesday.

"More than 250 members of the House of Representatives have signed letters to Director Cordray asking for a hold harmless period," Rep. Blaine Luetkemeyer, R-Mo. said on his website. "I hope Director Cordray takes into full consideration the benefit of implementing a period of restrained enforcement."

Absent Congress passing a law requiring the CFPB to go easy on TRID enforcement, there's little upside for the agency to do so on its own. Under TILA and the Real Estate Settlement Procedures Act, consumers can pursue so-called private rights of action, meaning they can sue lenders and servicers for violating the laws.

Even without a formal grace period, a number of practical realities stand in the way of TRID examinations happening until 2016. The bureau's exam teams typically create an advanced schedule of the targets and scope of their audits and will need time to incorporate TRID reviews into their exam procedures. In addition, examiners are still being trained on the procedures for reviewing TRID compliance that were published in April.

More importantly, CFPB audits review the quality control procedures in place within a lender's compliance management system to verify that lenders are taking steps to avoiding repeating the same mistakes. But the agency can't conduct those reviews until lenders have originated a sufficient number of loans under the new rules, which will take time.

It's the same approach the CFPB took with QM and ATR enforcement; the rules took effect in January 2014, but examiners didn't begin auditing lenders for compliance for four months, according to the bureau's winter 2015 Supervisory Highlights bulletin.