The Impact of the Consumer Protection Bureau

Perhaps you have heard of the Dodd-Frank Wall Street Reform and Consumer Protection Act, passed by the U.S. Congress in response to the financial crisis that began in 2008.  Old news?  Not really, since that Act created that Consumer Financial Protection Bureau (CFPB) to regulate and oversee consumer protection with regard to financial products and services in the U. S., in particular mortgage lending.  Banks, financial institutions and mortgage lenders have become increasingly aware of the CFPB and the new rules it is mandating.  But, residential real estate professionals are impacted by these new rules and developments, as well.

The most readily visible development will be the switch from the familiar HUD-1 Residential Settlement Statement form, first created by the Real Estate Settlement Procedures Act of 1974, (RESPA) to a new Closing Disclosure form, which will combine the elements of the current HUD-1, the Good Faith Estimates (GFE) mandated by revisions to RESPA and the Truth-in-Lending Disclosure form, required under the Truth in Lending Act of 1968.  The deadline for implementing the new Closing Disclosure statement is not until 2015, and it will take some time for lenders, title companies and other settlement providers, and their software providers to amend their settlement software programs to accommodate the new form.  Then, the lenders and settlement providers will need to train on using the new form and format, and sample test those changes, before putting them into practice.  Change is always difficult.  This will be no different.

But, sooner than the conversion to the Closing Disclosure, is the implementation of the CFPB mandated “Qualified Mortgage” (QM) rule, which went into effect January 10, 2014.  The QM rule focuses on the “ability-to-repay” requirement, which applies to nearly all closed-end residential mortgage loans.  This was an obvious response to the finding that too many lenders made mortgages in the last decade without first considering whether the borrower could actually afford to repay the loan.  (And that was before the plunge in home values that resulted from the financial crises.)  So, what do the QM rules have to do with real estate professionals?

Well, in order to sell a home, you need a buyer – a buyer who can afford to purchase that home.  And that purchaser needs to find a lender, who is willing and able to make a mortgage loan within the regulations put forth by the CFPB.  One of the QM rules is that a borrower is not to exceed a 43% DTI (debt-to-income) ratio – based only on verified and documented income.  Another QM rule limits the lender to charging and collecting points and fees that do not total more than 3% of the loan amount.  And, those fees would include any charges from charges retained by the lender, loan originator or any affiliate, including a lender affiliated title company.  These QM rules may impact a lender’s ability to lend and a buyer’s ability to qualify.

The CFPB continues to scrutinize the practices and the protection on non-public-information (NPI) by the mortgage lenders, and has made the lenders responsible for the same security and protection of NPI by its vendors and settlement providers.  As a result, title companies have been getting their acts together and improving their security systems, and documenting the ways that they attempt to protect the consumer.  Accordingly the American Land Title Association has worked with major lenders and the CFPB to develop seven “pillars” of Best Practices to set a standard of practice and security in the title industry by which a title company might be evaluated. Best Homes Title Agency has been ahead of the game in adapting those “pillars” of Best Practice.  We will elaborate on how Best Homes Title Agency is maintaining those high standards in our next issue of Bits from the Best.