The Audacity of ... CFPB's Misleading Marketing Tool

Instead of "Playing Lender" the CFPB Should Teach Consumers How to Rate Shop

Considering the number of blows the mortgage industry has patiently withstood at the hands of well-intentioned but misinformed regulators, it may seem surprising to some at the level of affront taken over the "Check interest rates for your situation" (the checker) on the Consumer Financial Protection Bureau (CFPB) webpage. All of the industry professional associations have launched attacks against the checker.

Much of the criticism of the tool surrounds the apparent opacity of the checker.  "It leads people to believe they would be eligible for a loan based on no other information." (Mortgage Broker)  Specifically, credit score only driven modeling doesn't account for many other features of a credit history that makes you ineligible for financing, such as recent bankruptcy, credit counseling, co-signed loans, insufficient trades and others.  In addition, missing are: 1.) APR, 2.) Mortgage Insurance Costs, 3.) Doesn't distinguish or provide Government loan options.

The CFPB has defended the site against industry complaints, saying a customer who is aware that interest rates are different from lender to lender is 50% more likely to shop, and the page remains active.  Perhaps the CFPB feels the protest shows they have struck a nerve - exactly what they wanted. Sadly, though, this agency has taken a page out of online marketers' playbook, and walks a fine line between information and deception to create engagement. The checker goes down the same "bait and switch" path that many online lead generation sites engage in.  The message a lender would take from the regulator's site:"It's okay to provide misleading rate options if enough remains unknown so you can be sufficiently vague."

The Checker reveals another clear misunderstanding of the business rule the Bureau has set into place. It ignores a fact of life for mortgage lenders and brokers alike; under the Anti-Steering Rules, you cannot change your pricing based on any feature of the loan.  The customer CAN'T negotiate with a lender because the lender CAN'T change the price. Period. The CFPB sets up the consumer to believe that they CAN negotiate the price. One can see the frustration the consumer will experience when, after providing all the information the lender has required to issue a price quote, a rate negotiation results in no price improvement and will wonder "what was all that about?"

Another flaw in the CFPB's mandate that customers shop; many lenders require a hard credit pull to quote rates. The impact of a single inquiry may not have a deleterious effect on your score, but two or three in succession may drop your score enough to negatively impact your rate.   

Deceptive and (Honestly?) Useless

I myself have been through this Unfair, Deceptive and Abusive Act and Practice several times after seeing a great rate on a marketing website. Ultimately, there was always a reason that the advertised rate was unavailable to me.  Self-employment, length of employment, asset sufficiency or sourcing, the property's characteristics or other impediment get pulled from a panoply of potential barriers. I'm in the industry - these are legitimate barriers - but they don't excuse holding out a rate that may not be available to the public. The checker's functionality does LESS than the lead generation sites.   

The site acts as if rates exist at some place in time.  The reality is that rates are very fluid and change from moment to moment.  Intraday rate changes are common.  If, as a consumer, you shop rates over the course of a few days, you may select a higher rate that seems good because rates have decreased over that time.  Conversely, you may miss an opportunity to lock in if interest rates rise while you shop. The MOST common error consumers make when shopping is to compare lenders when they are not in a position to lock in - because they do not yet have a signed sales agreement.  The CFPB should provide real instruction on rate shopping, such as what we have provided below.

A Homebuyer's Guide to Rate Shopping

Purchasing a home is probably one of the largest financial decisions you will ever make. You want to make informed choices, but the mortgage process is complex, and it’s hard to even know the right questions to ask.  Financial alternatives exist and you have choices for where you can go to get financing to buy a home. But before you even know how and where to shop for a mortgage, you should know the right time WHEN to shop.

I shopped for a pre-approval so, I should stick with that lender for my mortgage. 

False	True
Once you have talked to one lender, you have to use that lender for your loan.	You can talk to as many lenders as you like about pre-approval and pre-qualification.  You can also apply with different lenders or lock in with different lenders.  By working with a few lenders, you can negotiate more effectively. NOTE:  The CFPB regulates compensation, so lenders and brokers are no longer able to "negotiate" on pricing as in the past. Most companies offer a fixed price.

Be careful how many times you have your credit report pulled by a lender or broker.  For the purposes of a pre-qualification, most lenders or brokers will take the credit report you can get for yourself from the credit bureaus (like annualcreditreport.com).  This is cheaper, too.  The lender will want what is called a Three Bureau Merge (Tri-Merge) with all three repositories.

Whether face-to-face or online, you should talk with a few lenders and ask for recommendations to find the best fit for your situation. While the interest rate is a big factor, it is not the only factor. Consider the different types of loan options available; get a written estimate of closing costs and fees. Find out their policies for locking in interest rates. 

When to shop for a mortgage

Wrong	Right
You just started shopping for a home and you are looking in a neighborhood.  You figure your price range is $200,000 to $225,000.	You have a sales contract, signed (or about to be signed) by the seller, which details a sales price, your down payment, the closing date and any costs that the seller will pay for you. You may have been through the pre- approval process

You have been told that you need to shop around for a mortgage. So you do, calling lenders asking for rate quotes and comparing offers.  More than likely, you are finding that you have more questions than answers. If you find yourself in this position, it’s because you didn’t do some of the earlier steps, like getting pre-approved or pre-qualified. More importantly though, is the timing right when it comes to the bigger picture? 

Do you have a contract to purchase a home?  If yes, then you should shop for a mortgage.  If you don’t have a contract, the information that the lender gives you is not accurate. Without a sales contract, you don’t have the correct loan amount and settlement date you must have to meet the requirements of your legally binding sales contract. If you don’t have a contract, the lender cannot guarantee your interest rate, which is known as locking in.

After you find the home then you can lock-in your rate

False	True
A lock-in can be given at any time.  Once a lender has your loan application, you are locked in.  The lock-in is only for the points because the rate continues to float until closing.	A lock-in of your rate includes a guarantee of the interest rate, loan type, loan amount, and any points you must pay. These expire on a specific date, so in order to get the terms of the lock-in, you must close before the expiration of the guarantee.

Lenders are often accused of “bait and switch” tactics; offering one rate at the beginning then giving another one at the end. The reality is that many things can change the interest rate lock-in, like pricing adjustments for your credit, the type of property you are buying, and how much you are putting  in your down payment. It is likely that in order to lock-in your rate accurately, you will have to provide your social security number, along with the information from your contract. 

What loan terms are you shopping for?

Wrong	Right
I’m shopping for a mortgage.  What’s your best rate?	I’m looking for your interest rate quote for a 30-year fixed rate loan with a loan amount of $145,000, a down payment of 10%, closing in 45 days, with no points.

Here’s an example. If you go to a Ford dealer and say, “I want the best price you have on a car”, the salesman will take you all the way to the beginning of your decision-making process and start to ask you about what kind of car you want. You should already have this information. To accurately shop, give the lender the most specific request you can.

When should I call to check interest rates?

Wrong	Right
I can call any time, day or night, and compare rate quotes over the course of a week or two.	I need to check rates between a few lenders I’m considering between 11:00 am and 4:00 pm.

Rates change ALL THE TIME. Even over the course of the day sometimes. Most lenders publish their rates sometime after the bond markets open and when the direction of rates is clear.  That’s usually around 10:00 AM Eastern Time. While some lenders hold their pricing overnight, there is no guarantee that a quote you receive at 11:00 AM will be valid after 5:00 PM.  Wrap up your shopping by 4:00 of the same day so that you can compare and call the lender with the best price before the close of business. 

Am I dealing with a broker or a lender?

Broker	Lender
·         Cannot guarantee a rate or approve a loan directly – Get a copy of confirmation of lock or approval from investor. ·         Can shop multiple investors for the best rate. ·         May have special products	·         Can lock a rate directly ·         Can approve loans directly ·         Cannot shop on your behalf ·         Limited selection of products

Banks, savings banks, and credit unions usually make loans from their own funds, so they CAN commit to giving you a loan at a specific interest rate.  Mortgage lenders have the ability to approve and fund loans using money generated from selling loans into the secondary market. Brokers arrange financing by surveying many lenders in a specific marketplace and finding the most competitive programs, flexible guidelines, and reliable service, but CANNOT fund or approve loans.

You can begin your search online, but also ask your friends, family, and co-workers for referrals as well. Your real estate agent can also recommend at least three local lenders who have a track record of being honest and reliable.

Other Rate Checker Articles

Ken Harney's Article

TRID - It's Not Just a Disclosure, it's a Process

Update - 7/29/2015 - Corrections to Integrated Disclosure Rule continue!

The CFPB's newest "final" rule amended the TILA-RESPA Integrated Disclosure (TRID) Rule.

Changed the timing requirement for the issuance of a revised Loan Estimate resulting from a rate lock event to align with the timing requirement for all other changed circumstances - the third business day after the triggering event (the rate lock).

The rule announced yesterday also added

1.) Optional disclosure to the Loan Estimate for certain construction loans that are expected not to close until after more than 60 days from issuance of the Loan Estimate,
2.) Added the LE and CB to the list of documents requiring Loan Originator names and NMLSR IDs.

Disclosure AND Timing - 10/3/2015 Loan Estimate Process

While you have some time before you HAVE to be ready, the deadlines are quickly approaching.

Policy and Procedure Implementation Issues

Highlights of Actual Changes From GFE to Loan Estimate Process

TRID - Truth-in-Lending and RESPA Integrated Disclosure
LEAP - Loan Estimate Application Procedure

While many industry compliance experts toll the warning bells loudly and repeatedly that the sky is falling, the reality emerges that the new loan estimate process represents a refinement of the 2010 GFE process and the elimination of the TIL. Regulators should receive some credit for the difficult task they have accomplished involving combining two completely different laws into one unified customer facing document. Here we take the time to step backward and look at the real changes, and see where our actual policies and procedures will have to change to ensure and prove compliance.

First, from a conceptual framework, the process itself hasn't changed.  The industry has and continues to provide RESPA and TIL disclosures, and the procedure for resolving changes and errors remain the same.  The difference is that, because of the unified form, instead of having two separate paths (TIL and RESPA) we now have one. The benefits of a single track outweigh potential complications from misunderstanding.  Examining GFE 2010 and TIL/MDIA, and then identifying the components required from each, provides a framework for implementation.

Loan Estimate Differences
GFE 2010	TIL/MDIA	Loan Estimate 2015	Description
Six Items and anything else needed	Application Received	Six Items ONLY – cannot refuse to issue based on "Additional Info Needed"	Consumer Name Consumer Address Consumer Social Property Address Property Value Mortgage Amount
Intent to Proceed		Intent to Proceed	No Change
3 Days/3 Days	3 Days/3 Days and 7 Days	3 Days/3 Days and 7 Days	7 Business days before consummation is the TIL Requirement
Changed Circumstance within 3 Days		Changed Circumstance within 3 Days	Cannot be based on information provided earlier, Revised Estimate within 3 business days
Lock in – Changed Circumstance	Reissue New TIL on lock date	Reissue LE within 24 hours of Lock-in	Financing Agreement signed FIRST, then revised Loan Estimate
HUD-1		Closing Disclosure	4 Business Days prior or mail 7 calendar days
HUD 1 prepared by Settlement Agent/Lender Review		Closing Disclosure prepared by Lender	7 days prior
Tolerance 0/10/100	1/8th or ¼ or	0/10/100 Costs and 1/8th or ¼ APR	No Change here, but if one or the other change, must issue. You must disclose at least 1 service provider
Initial Disclosure Provided by Broker and Lender	Creditor including Broker OR Lender	Creditor ONLY	Broker can issue, but becomes creditor, impossible in some states
Pre-Qual -Non-GFE Cost Estimate		“New Language”	“Your actual rate, payment, and costs could be higher. Get an official Loan Estimate before choosing a loan.”
30/60 days to correct		30/60 days to cure	30 days to issue corrected closing disclosure 60 days to refund funds and corrected disclosure to cure

Document Preparation

Much of the concern and perception of upheaval comes from the complete reinvention of two of the forms we see most often; the GFE and TIL. We have less to worry about in regards to completing the new loan estimate and closing disclosure because the burden of integrating these falls on our Loan Origination Systems (LOS) and Doc Prep vendors. 

Ellie Mae is one vendor who has proactively addressed the Integrated Disclosures and has already completed its input screen and benchmark re-builds.  Examining their courses with respect to the updates, you can see only a few fields got added to account for the changes and record-keeping purposes. 

Integrating your Systems into Procedure

If your LOS or Doc Prep vendor has not provided you a roadmap for these elements, note that the compliance deadline nears.  You should allow yourself 60 days to update your procedures and alert your staff to several new definitions, as well as conducting some dry runs to ensure you can execute on August 1, 2015.  Working backwards, this means that your LOS and Doc Prep vendors should have information to you at least 60 days in advance of this. That means your vendors should have your products updated by April 1, 2015.  

Sample Procedures - Click here to Download Sample Policy & Procedure

Adopting this new regulatory scheme, unless your business focuses on reverse or home equity lending, means that the old TIL disclosure procedures take a distant back seat.  To amend your existing procedures, you will overwrite your GFE application process.  

Lenders will have to establish a proactive closing disclosure review process as a result of the need to deliver it 7 days prior to closing.  Operationally this simply means that the HUD-1 Review Process which normally happened in conjunction with the closing/funding process is 

If you do not have a 2010 GFE estimate procedure, or a HUD-1 review procedure, you need to address this matter separately, but the updates to Policies and Procedures can be be quickly amended by ensuring the following:

Loan Estimate Process

1. Cost Estimate process (must state NOT a Loan Estimate - and look different)
2. Deliver Loan Estimate and Settlement Providers within 3 days
1. Property/transaction NOT mobile, Reverse, HELOC
2. Customer provides 6 items
3. Application received
3. Intent to Proceed
1. Customer acknowledges intent to proceed
2. 10 Days pass - Loan Estimate expires
4. Change of Circumstance
1. Application Date > 8/1/2015? 
2. Deliver Revised Loan Estimate within 3 days
5. Lock-in 
1. Application Date > 8/1/2015?
2. If AT Application, Loan Estimate within 3 days
3. If AFTER Application Deliver Revised Loan Estimate WITH Lock-in/Financing Agreement
6. Closing Preparation 
1. Application Date > 8/1/2015?
2. 7 Days since Initial Estimate
3. 4 Days since revised estimate received by customer
4. 7 Days Prior Closing Cost Disclosure Review and Deliver to Borrower and Settlement Agent
5. 24 hours prior deliver Final Closing Cost Disclosure
7. Closing Audit 
1. Application Date > 8/1/2015?
2. Completed within 30 days
3. Funds refunded (if necessary) with revised cost disclosure within 60 days
8. Retention
1. Application Date > 8/1/2015?
2. Retain ALL documents for 5 years from date of consummation

If you do not have a procedure for GFE or Closing Docs Review to edit, we can provide this as part of our Lender or Correspondent Packages - or contact us for a stand-alone process document which we will issue in February.  

Additional Resources


Buckley & Sandler TRID Resource Center (Legal Perspective)
ProClose 10 Things (Doc Prep Vendor's Perspective)
Housing Wire Readiness Assessment
Dodd-Frank Update - Howard Lax Article