Truth Be Told, TILA/RESPA Changes Could Be Costly

Integrated mortgage disclosures top list of regulatory changes approved or under consideration in the year ahead.

There’s plenty to watch on next year’s regulatory watch list. And here’s a date to circle: Aug. 1, 2015. That’s when new rules for integrated mortgage disclosures take effect, and the effect could be considerable.

The Consumer Financial Protection Bureau, acting on the behest of Dodd-Frank, has combined the decades-old closing documentation requirements of the Truth in Lending Act and Real Estate Settlement and Procedures Act. (TILA in its original form dates to 1968; RESPA to 1974.)

There will be a new loan estimate form, a new closing disclosure form, and up to $5,000 in penalties for each loan application that fails to comply. Credit unions, counsel, and consultants agree that automating the process might be the only way to make it work.

The CFPB says the new forms will be easier to use than the current documents, and I generally agree, but getting there will be the problem, says Gaye DeCesare, chief compliance officer with Belvoir Federal Credit Union ($317M, Woodbridge, VA) and CEO of the Compass 4 CUs consultancy.

Phyllis Mariam, vice president of compliance at Pentagon Federal Credit Union ($18.6B, Alexandria, VA), adds, This rule will require us to devote significant IT, compliance, and mortgage operations time and resources at a time when we’re still evaluating the impact of the 2014 rules.

Thousands of pages of rules and regulations from the CFPB and NCUA regarding data collection, compensation for mortgage loan originators, and high-priced mortgage loans took effect earlier this year.

Despite the added burden, don’t wait around to deal with TILA/RESPA changes, counsels credit union attorney Andy Keeney of the Kaufman & Canoles law firm in Norfolk, VA.

Immediate attention and preparation is the key, he says.

Click here for the CFPB website on the integrated disclosure requirements. Erin O’Hern, regulatory counsel with PolicyWorks in Des Moines, IA, also recommends:

  • Determine what mortgage products the credit union offers are covered under the new law (not all are).
  • Determine what training and resources the credit union will need.
  • Reach out to third-party partners such as realtors and settlement agents to ensure they’re aware of the changes.
  • Talk to forms provider and loan processing software vendors (and possibly core processors).

David Foss, president of Jack Henry & Associates, says his company has been preparing for the changes for months. JHA owns Symitar and ProfitStars and has approximately 2,000 credit union and banking customers running its core platforms and at least 800 using the automation solution that will be used to respond to the new TILA/RESPA requirements.

We’re well down the path to getting ready for this, Foss says.

Compliance Camps 2015

Meanwhile, Brad Smith, chief of staff at Pacific Marine Credit Union ($691.6M, Oceanside, CA), separates the compliance challenges his credit union faces into two camps.

First, we have existing compliance requirements that continue to expand and drain resources, he says, pointing to Bank Secrecy Act and Office of Foreign Assets Control rules that have been expanded to cover transactions such as cash advances and cashier’s checks.

In the second camp are the proposed regulatory compliance issues, Smith says. Some are more costly than others, but what concerns us most are those that lead to a direct reduction in non-interest income while rates are at historically low levels for such an extended period of time.

The PMCU executive also points to the interchange fray and to discussions about the regulation of overdraft fees, saying arbitrarily low limits could reduce our income and potentially reduce the availability of these types of short-term liquidity options to low-income members, which could lead to more heinous options such as predatory lenders. PMCU has been fighting that battle itself around the major Marine installations in the San Diego area.

On another front, PMCU and hundreds of other credit unions are keeping an eye on Department of Defense regulations that could limit the ability to offer short-term loans at all. The department’s September announcement has been followed by an extended comment period, and one of the industry’s regulatory champions says the whole industry should be concerned.

Carrie Hunt, senior vice president and general counsel at NAFCU, notes that all credit unions might have service members covered by the lending rules.

I think we’re a ways away from having a final rule, but ultimately we want the same thing: to protect service members without impacting credit unions’ ability to lend responsibly, Hunt says.

There are NCUA small-dollar lending rules in place now, and trade groups have been working to convince the DOD that those protections are sufficient.

Security of another kind is also on the agenda in 2015. The NCUA is going demand that credit unions be better able to detect cyberattacks, following up on the results of a multi-agency assessment earlier this year from routine examinations at 500 credit unions and community banks. BSA guidance also has been expanded. This National Law Review article explains it well.

And then there’s the matter of data breaches. Hunt says NAFCU will continue to back the NCUA’s push to shift liability for data breaches to merchants, something that promises to be a fight among lobbyists.

That’s not all. Home Mortgage Disclosure Act rules also may be changed in ways that compliance expert DeCesare says could double or triple the amount of data collection.

Then there are the risk-based capital rules still to be decided. And now the revamping of the 5300 Call Report.

The best advice for 2015?

Stay tuned, says DeCesare.

December 11, 2014

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