Know Before You Owe: A One-Year Lookback

Comprehensive regulatory overhauls are never easy, and harmonizing the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA) through the Consumer Financial Protection Bureau’s (CFPB) “Know Before You Owe” (KBYO) mortgage initiative has been no exception.

In effect for one year now, real estate industry professionals are becoming more comfortable with the new KBYO disclosure forms, but some confusion still remains. Fortunately, CFPB issued a proposed rule in July to address many of the challenges raised by lenders, real estate agents and settlement providers about KBYO.

Over the past year, despite ongoing issues with the new KBYO process, transaction delays have started to decline. Prior to the October 3, 2015 effective date, a typical closing timeframe was roughly 30 days. After KBYO implementation, transactions were delayed 8.3 percent of the time, with a peak time-to-close of 41.2 days in November 2015. By the second quarter of this year, the share of transactions delayed due to KBYO eased to 1.7 percent.

The latest National Association of REALTORS® (NAR) Survey of Mortgage Originators revealed that while KBYO-related delays or cancellations decreased overall, some lenders were more reluctant to originate smaller loans and were more likely to increase fees to consumers to offset compliance costs due to KBYO.

Another unintended consequence has been lenders’ reluctance to share the new required Closing Disclosure (CD) with real estate professionals out of fear of liability for disclosing clients’ nonpublic personal information. Lenders claim sharing the CD violates federal privacy law (Gramm-Leach-Bliley Act). However, an exception within the law allows lenders to distribute the CD to third parties, including real estate professionals, and was not amended by KBYO.

Homebuyers and sellers rely on real estate professionals for guidance when navigating the complexities of a real estate sales transaction. Long before KBYO, real estate professionals had relatively unhindered access to the HUD-1, providing their clients with beneficial advice and helpful resources. Lenders’ refusal to share the CD under KBYO has placed recent buyers and sellers at an enormous disadvantage.

According to a survey of REALTORS®, 54.5 percent had problems obtaining the CD, and when access was permitted, more than half found errors within the document. The latest NAR mortgage originator survey also revealed that the percentage of lenders unwilling to share the CD increased to nearly 65 percent, upending the KBYO theme of transparency and accountability.

CFPB Proposes Changes
Based on continuing implementation issues, CFPB proposed amendments to KBYO in July, with an open comment period closing on October 18, 2016. The CFPB’s proposed rule updates fee tolerance provisions, allows for certain CD modifications after issuance, extends requirements for co-op transactions, clarifies construction loan issues and promotes housing assistance lending without upsetting existing exemptions, among other things.

As advocated by NAR, CFPB also included language acknowledging that sharing the CD with real estate professionals is permitted, in accordance with the Gramm-Leach-Bliley Act. Highlighting this law provides lenders with certainty when sharing the CD with real estate professionals and helps consumers avoid unnecessary and costly slowdowns for real estate purchases.

Not included, but strongly advocated for by industry, was lenders’ ability to cure errors and the resulting impact on liability. According to CFPB, this issue was not addressed because of complexity and the likelihood of undermining compliance incentives, causing continued frustration for lenders active in the secondary market.

Even with an ongoing learning curve, KBYO has resulted in more transparency for consumers, better accountability of financial institutions and strengthened accuracy in technology to keep up with loan origination demands. By streamlining valuable information and promoting money-saving comparison-shopping, KBYO has effectively renovated the home-buying process into a more manageable experience for consumers.

CFPB should continue to concentrate efforts on advancing the pursuit of homeownership through thoughtful and effective regulation. As the election draws closer, the future of housing policy must remain focused on creating opportunity for qualified consumers without encumbering the home-buying process.

For more information on KBYO, visit

Christie DeSanctis is a policy representative – Business Issues, for the National Association of REALTORS®.

Source: FTNJ

Get In Touch

Please send us your questions and comments. One of our team members will respond to you in a timely fashion.