The Consumer Financial Protection Bureau issued its final “Know Before You Owe” rules late last year. The rules create new mortgage disclosure forms and procedural requirements to help consumers better understand the key terms of mortgage loans, and to make loan offers more easily comparable. The rules will apply to mortgage applications starting August 1, 2015.
The new rules consolidate the four disclosures that lenders have been providing consumers under the Truth in Lending Act and the Real Estate Settlement Practices Act into two new forms. Although the information necessary to populate the new forms will be largely the same, mapping the data to new forms will require significant changes to lenders’ Loan Origination Systems. Banks will also have to change their operational processes around originations.
Lessons learned from similar efforts, including the implementation of last year’s mortgage origination and servicing rules, suggest that successful implementation not only calls for changes to operations, but will also require integrating the new rules into the firm’s compliance management system and adjusting the firm’s management of third-party risk. Checking the box on operational implementation alone will not suffice.
The new rules also present an opportunity for strategic change. The most successful and resilient companies treat disruptions such as these as opportunities to make other beneficial process changes – and to reassess their business models and underlying assumptions.
This Regulatory Brief provides (a) background of the new mortgage disclosure rules, (b) an analysis of the rules’ challenges and opportunities, and (c) our view on what firms should be doing now.