June 18, 2021|CFPB, Disclosures, Mortgage Industry, TILA, TRID
While in Phoenix a few weeks ago I saw a news story that blew my mind. Apparently, some morons selling bottled water managed to cause people and pets to get really sick drinking their water. Some purchasers may have even died from it. How can you possibly screw up selling water that bad? Just don’t do your job. What could go wrong? See, Arizona water bottler that hired strip-club promoter to test it blamed for death, illnesses (msn.com). Meanwhile, I seem to be complaining a lot in these Musings. I feel like I’m becoming a mortgage industry Andy Rooney. I’m going to make sure to trim my eyebrows better.
The Juneteenth Regulatory Fiasco
Speaking of not screwing something up that should be easy, one sure way to upset mortgage consumers is to tell them they can’t close two days before the day scheduled and then blame unforgiving prescriptive mortgage regulations. But, that is just what happened to thousands of mortgage customers when the federal government inserted a surprise new federal holiday into a normal work week effective immediately. In perhaps the housing related journalistic understatement of the year, Housing Wire noted, “Normally, however, a new federal holiday is not enacted in less than 72 hours.”
Multiple mortgage lending regulations[1]use federal holidays to calculate the proper number of days for doing something (or not doing something). Most importantly, under TRID (a/k/a The Reason I Drink), a closing can’t occur unless the Closing Disclosure (CD) is issued 3 Business Days prior and under TILA the right of rescission requires a waiting period of 3 Business Days before funding can occur. Adding a new federal holiday effective immediately inserts a day that can’t be a Business Day into those 3-day windows[2]. So, we got massive confusion and scrambling in the industry about when to close loans and what disclosures to issue driven by the industry’s desire to be compliant while at the same time avoid totally unnecessary consumer inconvenience and frustration which the regulations seemed to require.
Compliance Pro’s in Overdrive
Needless to say, my email and phone blew up with compliance questions where they wouldn’t like the answers. Trade associations like MBA and ABA also desperately sought guidance from the regulators, but came up empty. Regulatory chat threads among compliance professionals lit up with hundreds of emails trying to find out what to do and what others are doing. “What do we do about the Business Day rules with our closings that are already scheduled?” “Customers will be totally inconvenienced if we have to push closings out a day”. “When do we fund our refinances that are in the rescission period?” “Do we need to reissue disclosures?” “Does this mean we add one day or a new 3 days?” “What are the investors saying?” On and on and on.
Unfortunately, these regulations don’t have any exclusions for doing something that is clearly in the best interest of the consumer or which make no sense. There is no wiggle room. This is a classic unintended consequence of having prescriptive regulations designed to help consumers backfiring when the world changes. There’s no way that Congress (or President Biden) intended to create this problem when it announced the new holiday a few days before it occurred. But, I doubt any lender wants to lead with an “ex-post facto” Constitutional argument on a regulatory issue in a class action or regulatory enforcement case. Besides, mortgage loan investors don’t have to buy your loans if they don’t like your compliance interpretations. If only someone could stop the madness…,
CFPB Enjoys a Federal Holiday
Fortunately for all of this[3], there is an extremely powerful federal financial industry consumer protection regulator that is both responsible for interpreting all of these federal regulations and for promoting good consumer outcomes. Click here for the CFPB’s timely announcement. Yeah, apparently, CFPB leadership was too busy (i) celebrating Juneteenth with a day off, and/or (ii) solving the country’s racial equity issues by seeking to punish the financial industry, to do something about this easily solved regulatory trick box for consumers and lenders alike. Nothing stopped CFPB from just announcing that for mortgage regulatory purposes that it is the CFPB’s position that the holiday will commence in 2022.[4] The very agency with the power to issue interpretations that could have easily facilitated good consumer outcomes and prevented the massive mess created by adding a new federal holiday without notice remained loudly silent. Surely, they did not feel powerless to say something about these rules they are charged with enforcing. Were they worried that this would somehow be an expansion of their expressed statutory authority? Why so circumspect on this particular issue?
Y2K all over again (without the preparation)
Setting aside the valid merits of making Juneteenth a federal holiday, what happened with this Juneteenth Business Day mortgage fiasco was like the nightmare imagined during preparation for Y2K actually coming to life, (but without preparation). It all could have been easily prevented, however, had the CFPB exercised a small amount of regulatory leadership and just said something to make it a non-issue. It’s not exactly an “own goal” like this gift to Canada from Haiti in a recent soccer match, but this may be one of the biggest missed layups in regulatory history.[5] Hindsight is 20/20, but this could come back to haunt the agency if enough consumers understand how they were totally let down because the agency took the day off and let consumers (and lenders) twist in the wind. At least CFPB isn’t regulating Arizona water bottlers (or selling tainted bottled water).
UPDATE June 21, 2021
After close of business on Friday June 18, CFPB Acting Director David Uejio emailed a statement to some industry participants that contradicted my “crickets” sarcasm. Unfortunately, the statement was worse than crickets because it only acknowledged the problem, without offering any resolution for the compliance community’s confusion or consumers inconvenienced by delays and uncertainty. I was unable to locate a link to Uejio’s email on the CFPB website.
[1] e.g., TILA for right of recission, TRID for days to close after CD issued or LE to be provided after application, even Reg B gets into the act on issuing copies of appraisals to consumers. An excellent summary by Mitch Kider’s firm of the Business Day issue applied to various mortgage regulations can be found here.
[2] Juneteenth falls on a Saturday this year, but mortgage companies can treat Saturday as a Business Day if they normally work on Saturday.
[3] Get prepared for a healthy dose of sarcasm now.
[4]MBA suggested just that in its communications with the CFPB. Even if the CFPB doesn’t care about lenders’ headaches, doing so would have prevented negative impact to consumers…., and they still could have the day off.
[5] Hyperbole. At least the CDC has backed down on the mask mandates a bit. CFPB may do something later, but the horse is already out of the barn on consumer disruption.