CFPB ; RIN 3170-AA48

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1 Robert R. Davis Executive Vice President Mortgage Markets, Financial Management & Public Policy (202) Ms. Monica Jackson Office of the Executive Secretary 1275 First Street, NE Washington, DC Re: Docket No. CFPB ; RIN 3170-AA48 Amendments to the 2013 Integrated Mortgage Disclosures Rule Under the Real Estate Settlement Procedures Act (Regulation X) and Truth In Lending Act (Regulation Z) and the 2013 Loan Originator Rule Under the Truth in Lending Act (Regulation Z) Dear Ms. Jackson: The American Bankers Association (ABA) 1 appreciates the opportunity to comment on the s ( CFPB or Bureau ) proposal to modify the Truth in Lending Act and Real Estate Settlement Procedures Act Final Rule (TILA-RESPA Final Rule). Under this proposal, the Bureau is proposing technical amendments as well as two important modifications to the rule an adjustment to the timing requirement for revised disclosures when the consumer locks a rate or extends a rate lock after the initial disclosures are provided; and an amendment to permit language related to new construction loans to be included on the Loan Estimate form. In addition, the proposal amends the 2013 Loan Originator Final Rule to provide for placement of the NMLSR ID on the integrated disclosures. ABA appreciates the Bureau s attention to important implementation matters pertaining to the TILA-RESPA Final Rule. Overall, ABA members applaud the Bureau for its ongoing efforts to assist the industry in its compliance efforts, and for providing more clarity to the difficult requirements that arise from the ongoing legal reforms. With regard to the issues raised in this proposed rulemaking, we urge that the Bureau facilitate compliance and reduce burdens by adopting a consistent three-day redisclosure requirement for fee changes associated with rate locks. In addition, ABA requests that the Bureau advance with its proposal to amend the final rule by including explicit direction on the method and placement of disclosures regarding new construction loans. 1 The American Bankers Association is the voice of the nation s $15 trillion banking industry, which is composed of small, regional and large banks that together employ more than 2 million people, safeguard $11 ½ trillion in deposits, and extend $8 trillion in loans.

2 Page 2 Following are ABA s comments on the specific elements of this proposal. Item 1: Revised Disclosures After Rate Locks The proposal aims to amend (e)(3)(iv)(D), which states that, in order to revise the estimated amounts used to determine good faith pursuant to (e)(1), creditors must redisclose interest rate dependent charges and loan terms on the date that the rate is locked. The Bureau is proposing to relax the timing requirement to state that creditors must provide a revised disclosure no later than the next business day after the date the rate is locked, instead of the same date. ABA COMMENTS: ABA appreciates the Bureau s willingness to revisit the final rule requirements s regarding same-day redisclosure requirements. ABA agrees with the Bureau s articulation that the redisclosure requirement, as finalized, would create consumer disadvantages and burden lender operations needlessly. ABA confirms that the rigidity and stringency imposed by the final rule s same-day redisclosure requirement would create timing and compliance difficulties which would, in turn, lead lenders to place strict restrictions on when and how consumers execute their rate lock agreements. ABA agrees, therefore, with the Bureau s proposal to relax the timing requirements required on redisclosures at rate lock. ABA believes, however, that the one-day redisclosure deadline being proposed by the Bureau is still insufficient. We urge that the timeframes for redisclosure requirements at rate lock be relaxed to allow for a three-business-day disclosure timeframe, rather the one-business day proposed by the Bureau. Our recommendation is premised on various issues and challenges brought up by our member banks o Almost all member institutions, particularly community banks, report that a 24-hour turnaround on disclosures is very difficult and resource intensive. The difficulties arise due to a multiplicity of reasons Rules Require Longer Compliance Timeframes: The new mortgage disclosure rules are extremely rigid and demand numerical precision. Achieving the precision mandated by these rules require care, attention and oversight. In most institutions, mortgage disclosures are assigned to specific staff, and the disclosures are individually reviewed by assigned employees for accuracy. Although it is true, as the Bureau points out in the preamble, that revised Loan Estimates based on interest rate dependent charges may not require additional information from other parties, such as a third party vendor, it still remains true that the redisclosures are mandated to be very precise and accurate. The overall objective of precision in mortgage disclosures is not advanced by the imposition of extremely brief time-frames

3 Page 3 for preparing such disclosures. The preparation and review of disclosures require that the rate lock be verified, the individual costs identified, and cost modifications identified. Then, the fees that fall into variance must be recalculated and re-entered, and the new fixed disclosure form must then be re-read to ensure accuracy this review includes a review of the entire disclosure to ensure accuracy of the totals, not just the line items explicitly affected. Even if one assumes conservatively that this activity consumes only 30 to 60 bank staff minutes, that time block must be devoted and specifically scheduled for each required re-disclosure. Varying Circumstances: As recognized by the CFPB in portions of the preamble discussion, transactions are never entirely typical and they often require procedural adaptations and accommodations of various types. In order to truly accommodate consumer needs in their patterns and daily lives, banks must deal with problematic instances that require elongated timeframes to resolve. Examples include situations where there are different time zones involved, a consumer decides on a late-night lock-in, a consumer communicates unclearly and follow-up calls are needed, difficulties arise in instances of co-application, there are temporary or seasonal up-ticks in application volumes, there are staff shortages due to inclement weather or other conditions. In all these instances, next-day timing deadlines will cause real, and sometimes insurmountable, challenges for a majority of institutions. Consumer Error: Banks report that, very often, the consumers execute their locks incorrectly or through inappropriate channels. In such instances, banks will likely need 24 hours to verify the consumer s intent in order to appropriately effectuate the lock. Simultaneous Changed Circumstances: Banks report that, very often, there are separate changed circumstances that come up simultaneously with the rate-lock. In such instances, a lender would be required to issue redisclosures immediately to reflect the lock and to meet the requirements of the next-day provision and then re-issue near simultaneous updated redisclosures to reflect a full calculation of the other changed circumstances occurring with (or near) the rate lock. These types of situations are extremely common, and extremely difficult to resolve under a regime of a rigid oneday redisclosure rule, as proposed by the Bureau. o From a policy perspective, ABA notes that there are no real consumer advantages to mandating immediate redisclosures upon rate lock. By their nature, rate lock agreements do not alter the substance of the fee agreement between the borrower and lender a rate lock will only set, with more precision, a dependent fee that has already been agreed to. The fee variations triggered by a rate lock are not, therefore, critical to the consumer s shopping process. In this sense, it is immaterial that a consumer receives the redisclosores either 24 hours, 48 hours, or 72 hours from the

4 Page 4 lock execution in any instance, the consumer will not lose its negotiating position, and the consumer will remain protected against unrelated fee hikes. In light of the burdens that the tight turnaround times will impose, we would ask that the Bureau better describe why such stringent requirements are necessary. In the proposed rule s preamble, the Bureau does not advance any urgent consumer need that justifies a 24-hour disclosure turnaround. We are unaware of any widespread or common predatory or abusive lending scheme that uses the rate-lock mechanism to perpetrate closing cost fraud upon the public. In summary, rate locks are simply not an area of evident consumer exploitation, and it does not appear warranted to impose the heavy costs and complications that a 24-hour redisclosure timeframe will inflict upon banks. o Adopting a three-day redisclosure requirement for lock-ins is consistent with other requirements in the TILA-RESPA rules, and ABA asks that the Bureau strive for timing consistency across all its regulatory provisions. The TILA-RESPA disclosure system generally relies upon a three-day disclosure timeline for all applicable disclosures, redisclosures, and waiting periods. As such, the three-day timeframe for delivery of disclosures is generally hard-coded into bank procedure and accompanying compliance systems. This time-frame serves as the neutral setting for a system that requires document delivery to the consumer. Stated differently, the three-day timeframe is typical across RESPA and TILA requirements and this establishes a symmetry and predictability in bank operations. The Bureau would, therefore, greatly facilitate compliance, and contribute to regulatory clarity, by adopting a three-day redisclosure timing requirement for rate lock purposes. Item 2: Disclosure of New Construction Loans The Bureau is proposing to amend (m) to provide for the placement of language relating to certain new construction loans on the Loan Estimate form that is required in order for creditors to redisclose estimated charges. The Bureau is proposing to add new (m)(8), under the master heading Additional Information About This Loan and under the heading Other Considerations, and believes the (e)(3)(iv)(F) language is appropriately placed in this section of ABA COMMENTS: ABA appreciates the Bureau s attentiveness on the technical issues affecting this rule. We applaud the Board s efforts to ensure that the various regulations affecting mortgage origination are well-aligned and consistent. We offer two brief comments on this particular proposal ABA members do not express a preference regarding either the placement or articulation of the language relating to new construction loans. ABA does, however, request that the

5 Page 5 Bureau amend the final rule to explicitly include direction regarding where such language should be placed, and how such disclosure should be articulated. Explicit regulatory direction on location and content of this disclosure will greatly facilitate compliance going forward. The Bureau should consider explicit language to allow lenders to send disclosures pertaining to new construction as a separate document. Allowing lenders such an option would not hurt or confuse consumers, and would facilitate compliance. As written, the proposed rule omits direction on when the proposed new construction language should be removed from the loan estimate (e.g., loan is now within 60 days of consummation) and what might happen between disclosures if the consummation date is changed. Should the Bureau explicitly permit lenders to send the new construction disclosure as a separate document, the lender would have the ability to manage these situations outside of the scope of the actual loan estimate. Conclusion ABA commends the Bureau s efforts to respond to industry needs as banks strive to come into full compliance with these difficult mortgage disclosure reforms. We look forward to working with the Bureau to further improve upon these regulations and refine the disclosure forms in terms of consumer understanding. Thank you for the opportunity to comment. Sincerely, Robert R. Davis