At Rep. Maloney’s request, CFPB Director Cordray will work to address confusion surrounding co-op mortgage disclosure forms that is holding up sales
WASHINGTON – In response to a question from Congresswoman Carolyn B. Maloney (D-NY) during a hearing of the House Financial Services Committee, Director Richard Cordray this week said that the Consumer Financial Protection Bureau will consider issuing a clarification to ensure co-ops are included in the CFPB’s new Integrated Disclosure rule for mortgages.
Although co-ops have traditionally been considered real estate under both the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA), the CFPB did not specify whether co-ops would be considered real estate under the new rule. Since the new rule, co-op sales have been slowed because there is confusion over which type of mortgage disclosure form should be used.
“Different lenders have come to different conclusions about whether co-ops are included in the rule — some say they’re included, and some say they’re excluded,” said Maloney. “This is a big problem, because you’re not allowed to voluntarily comply with the Integrated Disclosure rule without violating the law. And this is a rare situation where the co-op industry thinks you have done such a good job on the Integrated Disclosure rule that they actually want to be included in the rule. So I’d like to ask you: Can you take this opportunity to clarify that co-ops are, in fact, intended to be covered by the new Integrated Disclosure rule?”
Cordray noted that the variance in state laws relating to co-ops is a factor in his thinking on the issue, but said they are taking Maloney’s concerns into consideration as they work to “get it right.”
“And as we’ve been looking at it and trying to understand it, it feels that the issue can vary in different parts of the country depending on state law,” Cordray said. “Now whether that’s the right answer or that’s just the current answer—whether we should be more specific somehow here is something that I believe we’ve taken under consideration. And we are considering it and will continue to talk back and forth both with your staff….I’d like to get it right. I’d like to be satisfactory.”
Historically, cooperatives have been treated as secured by real estate for disclosure purposes under TILA and RESPA. This was true even though cooperatives are secured by shares in a corporation rather than by real estate. When adopting TILA-RESPA Integrated Disclosure (TRID), the CFPB did not state that cooperatives should continue to be treated as secured by real estate, as they had been previously. Instead, the CFPB’s final rule is ambiguous about whether cooperatives are still included, which means that lenders have to look to state law to determine whether to comply with the TRID rule. This will lead to significant confusion and inconsistent regulatory treatment, because in some states, cooperatives are treated as real property, while in other states they’re treated as personal property.