The “Know Before You Owe” rules, which took effect Oct. 3, were written by the U.S. Consumer Financial Protection Bureau (CFPB) and require lenders to accurately disclose all details and fees at least three days before a closing. But lenders complained that the rules caused numerous delays in the mortgage process due to concerns over minor clerical errors in the Closing Disclosures form.
After reviewing the complaints, the CFPB told lenders last week that they won’t be held liable for minor errors in loan processing and paperwork under the new rules.
CFPB Director Richard Cordray sent a letter to the Mortgage Bankers Association (MBA) on Dec. 29 explaining that small paperwork errors and typos in key sections of the new disclosure rules would not result in lender lawsuits or regulatory punishments from federal agencies that buy the loans.
“We believe that the risk of private liability to investors is negligible for good-faith formatting errors and the like,” Cordray wrote to MBA, according to a MarketWatch report on Cordray’s letter. “We recognize that a certain level of minor errors in the early days of implementation is to be expected.”
The new clarification from the CFPB may prompt lenders to proceed more confidently.
“Needless to say, we think this is a very positive development,” MBA Vice President Pete Mills, said about CFPB’s recent clarification to lenders, MarketWatch reported.
In July, Pacific Union CEO Mark A. McLaughlin noted in a blog post that the new regulations would likely impact how quickly real estate transactions close, and the National Association of Realtors reported recently that sales of existing homes dropped by more than 10 percent in November — the slowest pace in 19 months — due mostly to the new regulations, which it said have been lengthening closing times. The average closing time rose to 41 days in November, NAR said, up from 36 days.