Compliance Blog

Written by Dillon Shea, Regulatory Affairs Counsel

Steve asked me to write a guest blog post while he and Sarah are at Regulatory Compliance Seminar.  I want to follow up on Steve’s post from October 19 regarding the most recent round of Know Before You Owe forms.  These forms will consolidate the current Reg Z early disclosures and the RESPA disclosures.  This is the fifth round of draft forms the CFPB has released. 

When I looked at the forms, two things jumped out at me.  First, the forms have increased from two to three (I will get to what was added in a moment).  The second thing I noticed is much more worrisome for mortgage lenders.  On page 3 of the forms, in the Comparisons section, there is a spot where the lender is required to disclose the “Lender Cost of Funds” which is described as “the rate the lender pays to borrow money to lend you.” 

Yes, you read that last sentence correctly.  In this case, that rate that is disclosed on the draft forms is the average rate of interest paid on deposits in the state of New Mexico (where consumer testing is taking place for this round of forms).  This is not something that the CFPB chose to include on its own.  Section 1419 of the Dodd-Frank Act requires lenders to disclose “the approximate amount of the wholesale rate of funds in connection with” a residential mortgage loan.  Since the requirement is part of the statute, the agency’s hands are tied to some extent in that some sort of disclosure to this effect must be made.  The statute, however, provides the CFPB authority to define exactly what the term means.  The CFPB will likely issue a proposed rule seeking comment on how exactly the term should be defined and disclosed. 

The rest of the changes are less worrisome.  As I said, the form has grown one page in length.  The bulk of that extra page consists of a section to verify receipt of the disclosure and a new section titled Other Considerations.  This new section is fairly straightforward.  Several of the disclosures are common sense and thus I question what value they add, nonetheless, the additions are not particularly problematic. 

Page 1 of these forms is an improvement over the last version.  Spreading out the disclosures to three pages raises its own questions, but it did allow the agency to design a less cluttered first page.  Also, the projected payments section does a better job of breaking down the component costs that make up the total monthly payment. 

Finally, the CFPB has continued to tinker with page 2, which discloses settlement costs and the cash needed to close on the loan.  I think the format used on this round of forms is a bit more user-friendly but I would be interested in hearing what NAFCU’s members think.

NAFCU will submit a letter to the CFPB on these draft forms.  If you have thoughts concerning how the lender’s cost of funds should be disclosed or any other input on these forms, please e-mail me at dshea@nafcu.org.