Understanding the Core Challenge
Over the past few years, the Consumer Financial Protection Bureau (CFPB) has focused on streamlining the Real Estate Settlement Procedures Act (RESPA) and Truth in Lending Act (TILA) regulations and disclosures. The final outcome is the Know Before You Owe (KBYO or TRID) rule, which has brought clarity to real estate sales transactions. However, the initial implementation, which began on October 3, 2015, posed several questions, complications, and associated costs.
Implications for Real Estate Professionals
The newly integrated KBYO disclosures have replaced the long-standing Good Faith Estimate (GFE) and HUD-1 settlement statement. As with any new process, there was a learning curve and unexpected obstacles. This uncertainty led lenders to become more cautious during the closing process, resulting in stronger lender control. One specific concern arose from the requirement to issue the Closing Disclosure (CD) three days before closing. Questions were raised regarding adjustments that could be made to the CD afterward and the potential delays that might occur. Moreover, there were reports of lenders and title companies hesitating to share the CD due to fears of liability related to disclosing clients’ personal information. In response, the CFPB has been actively working to address these concerns through subsequent rulemakings since 2015.
The National Association of Realtors (NAR) supports the harmonization of RESPA and TILA, aiming to enhance transparency, simplify disclosures, and reduce the burden on settlement service providers, including real estate professionals. The existing statutes can be confusing, with conflicting disclosures and procedures. By reforming and consolidating the rules and initial disclosures, settlement service providers and consumers alike can benefit, ultimately improving the settlement process.
Legislative and Regulatory Status
The final KBYO mortgage disclosure rule was issued on November 20, 2013, and officially took effect on October 3, 2015. During the final rule stage, the CFPB addressed major concerns raised by NAR, such as the proposed 3-day waiting period for transaction closures and the problematic “all in” APR provision, which was subsequently dropped. However, concerns about potential closing delays and the interaction between the mortgage and real estate transactions remained. Real estate agents faced difficulties accessing the CD due to lenders arguing that privacy laws, such as the Gramm-Leach-Bliley Act (GLBA) or Regulation P, prohibited them from sharing the CD. Nevertheless, an exception already allowed CD distribution to third parties, including real estate professionals. This exception was eventually clarified by the Bureau, thanks to advocacy efforts by NAR.
NAR also advocated for a restrained enforcement period and limited liability for the rule during the proposal stages. As a result, nearly 300 U.S. Senators and Representatives signed a letter to CFPB Director Richard Cordray during the 2015 REALTOR® Legislative Meetings, requesting a period of restrained enforcement, which the CFPB subsequently granted. In June 2016, NAR sent a letter to the CFPB seeking guidance on several concerning issues affecting consumers and the industry. These issues included clarity on lenders’ ability to share the CD with third parties, insight into revising the CD to reflect changes in circumstances (known as the “black hole”), and an extension of post-consummation timelines to correct minor errors, thereby minimizing the impact on the secondary market.
The CFPB addressed some of these concerns on July 29, 2016, by issuing a proposed rule. As advocated by NAR, the CFPB explicitly acknowledged that sharing the CD with real estate professionals is permitted under existing privacy laws (GLBA and Regulation P). Therefore, lenders’ reluctance to share the CD based on liability fears was unfounded.
On October 18, 2016, NAR submitted a letter to the CFPB commenting on the latest proposed rule. The letter urged the CFPB to clarify that lenders and title agents should share the CD with real estate agents in accordance with existing privacy laws and regulations. Additionally, NAR emphasized the importance of lenders’ ability to revise the CD to reflect valid changes in circumstances, extending post-consummation timelines to correct minor KBYO errors, and implementing further modifications to reduce uncertainty for consumers and the industry.
On July 7, 2017, the CFPB released the final rule amending the “Know Before You Owe” (KBYO or TRID) mortgage disclosure rule. This final rule clarified the ability to share the CD with third parties, marking a significant victory for real estate professionals nationwide. With an effective date of October 10, 2017, mandatory compliance was required by October 1, 2018.
Simultaneously, the CFPB issued a proposed rule to address the outstanding issue of revising a CD to reflect changes in costs imposed on consumers. On October 10, 2017, NAR provided comments on the proposed rule, advocating for lenders’ flexibility to reissue a CD and determine if a closing cost was disclosed in good faith, regardless of when the CD was provided in relation to consummation. NAR highlighted how early access to information during the closing process facilitates improved communication and overall transparency for consumers. A final rule was issued on April 26, 2018, and went into effect on June 1, 2018. Since then, the CFPB has updated its TILA-RESPA Integrated Disclosure Frequently Asked Questions (FAQs) to provide guidance for TRID-RESPA Integrated Disclosure Rule compliance.
In the fall of 2019, the CFPB initiated a five-year assessment of the TRID rule to evaluate implementation costs and regulatory benefits. An RFI was issued, and NAR provided comments after extensive outreach to members regarding the rule’s impact on consumers and their businesses. One ongoing frustration is the mandatory three-business-day waiting period when certain changes are made after the initial disclosure has been provided. NAR advocated for more consumer waivers to allow flexibility and prevent unnecessary delays during this waiting period. On October 1, 2020, the Bureau published the five-year lookback assessment, reporting how the TRID rule has improved consumers’ ability to find key mortgage information and compare offers. The CFPB also released a Data Point analysis, examining changes in terms and costs throughout the mortgage loan transaction. According to the analysis, almost 90 percent of mortgage loans underwent revision, with 62 percent receiving revised Loan Estimates (LE) and 49 percent receiving corrected CDs. This information will inform future changes to the rule, and NAR will continue providing feedback.
NAR Committee Involvement
The Business Issues Policy Committee, affiliated with NAR, actively engages in shaping policies related to TRID and other matters affecting the real estate industry.
For additional information about TRID and its impact on real estate professionals, visit Garrity Traina.