will be more costly and will put lenders at risk for an extended
period of time until the issues sort out,” they said in a written
statement. “The only clear way to mitigate this is for the CFPB
to issue clear and understandable regulations. There also needs
to be a mechanism for the CFPB to provide written and binding
guidance in response to questions.”
It is unclear who the cost burden will fall on. Will vendors have
to cover the costs of updating their systems or will financial institu-
tions pay for the changes with increased premiums or one-time fees?
“The general consensus from what smaller lenders are hearing
from their vendors, is that for the last change, vendors swallowed
the cost. But now some have reported that one-time assessments or
premium increases may be used to cover this set of changes. That
cost undoubtedly will be passed on to the consumer,” McElwee said.
Implementing HUD’s RESPA reform rule will be both a major industry effort and very costly. In HUD’s economic impact
analysis of the rule, it estimated that the total cost of compliance
would be $571 million for large firms and $407 million for small
“The new forms may be somewhat better
in allowing consumers to assess
the terms of the loan, but they hardly
advance the ball in terms of
disclosures relating to fees.”
firms. DC Solutions Group estimates that the average time per
loan originated may double or triple with the new changes.
Industry participants agree.
“It’s hard to say exactly what the costs will be, but any material
changes such as this, incurs a cost that is not inconsequential,” said
Brideen Gallagher, vice president of The Collingwood Group, a
Washington, D.C.-based consulting services group.
DC Solutions Group estimates that the cost for training and
legal advice “could be substantially higher than the last changes,
possibly in the range of $980 million.”
Farrell emphasized the costs inherent in changing forms, say-
ing “any time you have to change your forms, you have to pay for
the update. It’s never cheap to change the forms.”
But he added that the rules also have the potential to cut costs.
“Hopefully in the long run, the rules will require less remedia-
tion than the last RESPA reform if done correctly and this will
minimize long-term costs,” he said.
Fendelman estimates the cost will be double that of the 2008
reforms, adding, “The sheer magnitude of changes this time is
enormous.” In addition to actual costs, lenders also face liability
costs. The costs of getting something wrong “have never been
higher,” according to Gallagher.
Showalter emphasized that smaller banks have fewer resources
to devote to implementing the proposed rule, and believes they
will need to increasingly rely on vendors and outside help.
States are somewhat of the wild card in the equation. “There
are a lot of questions about fee aggregation with respect to state
law,” Roth said.
Despite the uncertainty about how state laws will interplay with
the rules, vendors, such as Interthinx, are prepared to combine
the requirements in comprehensive compliance tools.
All eyes will be on bureau to see how the rules are implemented.
Fendelman called the bureau’s undertaking a “herculean task.”“I don’t
envy the CFPB,” he said. “Many of these reforms are decades overdue.”
Jo Ann Barefoot, co-chair at Treliant Risk Advisors sees some
opportunity. “RESPA is an example of a law and regulation that
got written a long time ago, got amended over the years, and has
incredible regulatory complexity,” she said. “Because of the financial
crisis and the creation of the CFPB, there really is an opportunity
to do a fundamental rethinking of these kinds of rules.”
Michael Chan, vice president at ComplianceEase acknowledged
that there is a lot to be determined and that the industry still has,
“quite a long road ahead.”
Next Steps
Although these are only proposed rules, they do provide the
industry with insight into the direction of the bureau and the
shape of the final rules. “The real question is when will they be
finalized, and on what date the CFPB will mandate compliance,”
said Jim Milano, a partner at Washington, D.C.-based law firm
Weiner Brodsky Sidman & Kider.
In the preamble to the proposed rule, the bureau says it “believes
that a reasonable implementation period would help facilitate
compliance and potentially reduce the one-time costs that may
be incurred by the entities affected by the rule.” The bureau
specifically solicits comments at the time required to make these
changes. ABA will insist on extended compliance times of 18
months or more.
The bureau also implies that it will provide industry participants
with a longer compliance period than those mandated under
other Dodd-Frank Act mandates. “Under Dodd-Frank, most
disclosure changes required by the legislation must be prescribed
in final form by January 2013,” Milano said. “However, the CFPB
explicitly states that, given the complexity of this rulemaking
and the timing of this process, a final RESPA/TILA integrated
disclosure rule will not be issued by January 2013.”
A delayed implementation date is a key point in this rule-
making, and one that ABA has strongly advocated. With all the
other accompanying mortgage-related changes under Dodd-
Frank, ABA has insisted on coordinated rulemaking timelines
