Banking and Finance Law Daily CFPB fulfills promise to clarify Know Before You Owe compliance
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Friday, July 29, 2016

CFPB fulfills promise to clarify Know Before You Owe compliance

By John M. Pachkowski, J.D.

The Consumer Financial Protection Bureau has released proposed updates to its Know Before You Owe mortgage disclosure rule. The proposed amendments are intended to formalize guidance in the rule, and provide greater clarity and certainty. The proposed changes would augment implementation of the Know Before You Owe rule, which took effect in October 2015, and help facilitate compliance within the mortgage industry.

Comments on the proposed rule are due by Oct. 18, 2016.

Industry concerns. The CFPB took this action is response to earlier industry requests regarding compliance with the Know Before You Owe mortgage disclosure forms. In an April 2016 letter, the CFPB recognized that "the implementation of the Know Before You Owe rule poses many operational challenges" and will "continue the collaboration and engagement toward solutions and provide guidance where we have to the ability to do so." The bureau added that its regulatory implementation page is "designed to be responsive to industry concerns." The CFPB’s letter concluded that it hoped to issue the proposal in late July (see Banking and Finance Law DailyApril 28, 2016).

Proposed rule. Under the proposed rule, the CFPB would:

  • include tolerance provisions for the total of payments that parallel existing tolerances for the finance charge and disclosures affected by the finance charge; thereby making the treatment of the total of payments disclosure consistent with what it was prior to the Know Before You Owe mortgage disclosure rule;
  • promote housing assistance lending by clarifying that recording fees and transfer taxes may be charged in connection with those transactions without losing eligibility for the partial exemption under the Know Before You Owe mortgage disclosure rule;
  • extend the Know Before You Owe mortgage disclosure rule include all cooperative units since the rule only covers transactions secured by real property, as defined under state law and some states treat cooperative units as personal property; and
  • clarify how a creditor may provide separate disclosure forms to the consumer and the seller since it is the usual and accepted practice by creditors and settlement agents to provide a closing disclosure to consumers, sellers, and their real estate brokers or other agents.

Commenting on the proposed rule, CFPB Director Richard Cordray noted, "Our proposed updates will clarify parts of our mortgage disclosure rule to make for a smoother implementation process."

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