Blog LenderLaw Watch October 27, 2020

CFPB Issues Assessment of Rule Requiring Consolidation of Mortgage Disclosures

On October 1, 2020, the Consumer Financial Protection Bureau (CFPB) released its rule assessment for a final Rule relating to mortgage disclosures.  Known as the TRID Rule, the Bureau’s final Rule implemented requirements under the Consumer Financial Protection Act (CFPA) to integrate various mortgage loan disclosures under the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act of 1974 (RESPA).  The CFPB’s assessment marshalled data collected by the CFPB and other organizations to assess the effectiveness of the rule for consumer understanding as well as the costs to industry participants.

The TRID Rule, which was issued in November 2013 and went into effect in October 2015, combined previous mortgage disclosures into fewer documents.  Namely, the early TILA disclosure and Good Faith Estimate (GFE) that would formerly be provided at application were consolidated into one disclosure, and the final TILA disclosure and RESPA settlement statement (HUD-1) that would be provided shortly before closing were combined into one disclosure.  The CFPB’s goals were largely consumer-focused, as the TRID Rule was avowedly intended to ensure that: (1) disclosures were complete and accurate; (2) consumers could easily locate key information; (3) consumers could more easily compare loans so as to encourage mortgage shopping; and (4) to help consumers determine whether they could afford mortgages.

The CFPB’s assessment of the TRID Rule showed generally positive, but occasionally mixed results.  For example, according to the CFPB, the TRID Rule succeeded in helping consumers locate information and it facilitated comparison between mortgages.  However, some evidence showed that the TRID Rule actually made disclosure forms harder for consumers to understand.  Further, evidence was mixed regarding the prevalence of comparison shopping for mortgages.

For lenders, the TRID Rule appears to have “created sizeable implementation costs for lenders and closing companies.”  Mortgage originators reported that one-time costs for implementing the TRID Rule amounted to a median of $146 per mortgage originated in 2015—or around 2% of origination costs—higher than the CFPB’s initial cost-benefit estimate.  The largest implementation costs for lenders appear to have been “new information technology systems, policies, and training.”  Even more significantly, closing companies reported implementation costs of around $39 per closing, representing nearly 10% of costs for closing in 2015.

Ultimately, the CFPB assessment found that the TRID Rule may have increased the ongoing costs of originating mortgages.  In particular, the CFPB found that the TRID Rule led lenders to change processes for verifying closing costs and to increase “the frequency with which they absorbed or refunded consumers for costs or fees.”  The CFPB also acknowledged that the TRID Rule may have increased “the indirect costs from compliance risk,” including by transferring disclosure responsibilities to lenders and providing consumers with a private right of action.  Although the CFPB could not isolate the effect using the available data, it “heard . . . that creditors would pass through higher origination costs to consumers through higher prices.”

As shown by the CFPB’s assessment, the TRID Rule is another example of the CFPB issuing a rule that is intended to help consumers.  However, while the benefits to consumers are ambiguous, the added costs to industry participants were clear.  Ultimately, the assessment reveals that even seemingly small changes to the mortgage lending process may result in significant cost increases that may be borne by consumers.