CFPB Criticized for Lack of Guidance


Our old standby for information on all-things-CFPB has
slammed a new “fact sheet” issued by the agency regarding the treatment of construction-to-permanent
loans under new TRID disclosure rules. CFPB (the Consumer Financial Protection
Bureau) issued the two page sheet this month and Richard J. Andreano, writing
in the CFPB blog of the Ballard and Spahr law firm says it “falls far short of
the detailed guidance
sought by the mortgage industry.”

CFPB’s sheet speaks first to the loan estimate and closing
disclosure under the new TILA/RESPA Integrated
Disclosure (Know Before You Owe) rule. 
Construction-to-permanent loans are composed of a phase in which
payments (usually in multiples) are made to fund construction and then a permanent
phase during which payments cease and the loan begins to amortize.  The sheet explains that, as under the old
rules, the lender has the option for disclosure purposes of treating the loan
as a single entity
or as two separate loans. 
It can issue a single estimate and disclosure covering the whole loan
package or issue separate estimates and disclosures for the construction and
the “take out” phase.  

Andreano complains that the TRID rule
does not provide detailed guidance as to how to complete loan estimates and closing
disclosures for this type of loans nor are sample disclosures included with the
TRID rule.   In the fact sheet, CFPB refers the reader to Appendix
D to Regulation Z, saying it continues to apply under the new TRID rule.  Appendix D provides guidance on how to
compute the amount financed, APR and finance charge for a multiple advance
construction loan, when disclosed either as a single transaction or as separate

According to Andreano, “The TRID rule
added a commentary provision regarding Appendix D to address the disclosure of
principal and interest payments in the Projected Payments sections of both the
Loan Estimate and Closing Disclosure.  The commentary provision does not
address other elements of the Projected Payments sections.  Additionally,
the CFPB does not clarify in the fact sheet that Appendix D applies only when
the actual timing and/or amount of the multiple advances are not known.”

Andreano appears particularly bothered
that CFPB is aware that the guidance they are providing is inadequate as “the
CFPB’s final statement in the fact sheet is “The Bureau is considering
additional guidance to facilitate compliance with the Know Before You Owe
mortgage disclosure rule, including possibly a webinar on construction loan

The industry needs and deserves more
than a webinar
, he says.  It should
receive detailed written guidance with sample disclosures.  “The failure of the CFPB to provide written
guidance on other aspects of the TRID rule has significantly contributed to the
confusion and uncertainty in the industry regarding TRID rule
requirements.  It is frustrating to the industry that the CFPB continues
to resist providing written guidance on TRID rule matters (as well as other
matters), particularly when its sister federal agencies regularly provide
written guidance on important matters.”

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