Remember the Bill Murray movie in which his character relived the same day over and over again? It seems the past two decades of attempts to produce meaningful, early consumer mortgage disclosures have been a similar exercise. The Consumer Financial Protection Act of 2010, which is Title X of the Dodd-Frank Wall Street Reform and Consumer Protection Act, requires the Consumer Financial Protection Bureau (CFPB) to propose rules and model disclosures for consumers when they apply for a mortgage. The specific directive is to combine the disclosures required under the Truth in Lending Act (TILA) and sections 4 and 5 of the Real Estate Settlement Procedures Act of 1974 (RESPA) into a single, integrated disclosure for mortgage loan transactions covered by those laws. The CFPB must publish its proposed rule for public comment no later than July 21, 2012. This article explores the history of the many efforts to combine RESPA's Good Faith Estimate (GFE) and the early disclosure requirements under TILA. It also describes how this new attempt is different and considers what we have learned from this long, painful and costly process to accomplish this illusive goal. Will the CFPB get it right this time and let the industry live happily ever after, like Bill Murray's and Andie MacDowell's characters? It seems like we are about to find out.
Past attempts to improve disclosures
On Aug. 14, 1992, Frank Keating, then the Department of Housing and Urban Development's (HUD's) general counsel, responded to an inquiry from a lender's counsel regarding the disclosure of lender-paid mortgage broker fees (aka yield-spread premiums--or YSPs).
He replied: "I hereby restate my opinion that RESPA requires the disclosures of mortgage broker fees, however denominated, whether paid for directly or indirectly by the borrower or by the lender." Thus began the cycle of disclosure reform that has yet to end.
The first major event following the Keating letter was HUD's Negotiated Rulemaking in 1995. Representatives from trade associations, including the Mortgage Bankers Association (MBA), and consumer groups participated in a series of meetings to discuss, among other items, the disclosure of yield-spread premiums and the legality of volume-based compensation.
HUD sought consensus among the participants, with consensus defined as 100 percent agreement on the issues. Consensus did not occur. The reasons for this are complicated, but might be better understood given the fact that a consumer advocate who was involved in yield-spread premium class-action litigation was a participant. HUD failed to promulgate any rules directly resulting from the Negotiated Rulemaking.
The first congressional mandate to merge RESPA's GFE and TILA's early disclosure requirements came in 1996 in the Economic Growth and Regulatory Paperwork Reduction Act of 1996 (EGRPRA). This act required simplification and improvement of the disclosures applicable to each act and a single format for the disclosure of TILA and RESPA.
EGRPRA also provided that it the Federal Reserve Board (FRB) and HUD found that legislative action was necessary or appropriate to simplify and unify the disclosure requirements, that they must submit a report containing recommendations to Congress.
HUD and the FRB could not agree on simplification that was within their regulatory authority, and rather than producing the single disclosure, they submitted joint recommendations to Congress calling for legislative changes prior to simplification of the forms. Did they not have the necessary authority to make the changes?
The secretary of HUD was authorized to prescribe such rules and regulations, to make interpretations and to grant reasonable exemptions for classes of transactions as may be necessary to achieve the purposes of RESPA. While this authority has recently been transferred to the CFPB, at the time of EGRPRA's passage, HUD had exercised its authority to create the GFE and had full authority to modify the format or content. …