Dodd-Frank Act

Key Takeaways

• The Dodd-Frank Wall Street Reform and Consumer Protection Act became law on July 21, 2010 as Public Law 111-203.
• Dodd-Frank established the Bureau of Consumer Financial Protection, the agency everyone calls the CFPB.
• Enforcement of RESPA moved from HUD to the CFPB, and Equal Credit Opportunity Act enforcement moved from the Federal Reserve to the CFPB.
• Dodd-Frank directed the CFPB to combine the mortgage disclosures required by TILA and RESPA, which is where the Loan Estimate and the Closing Disclosure come from.

What It Means

The Dodd-Frank Act is the federal law Congress passed in response to the 2008 financial crisis, approved July 21, 2010 as Public Law 111-203. Its full name is the Dodd-Frank Wall Street Reform and Consumer Protection Act. Most of it aims at banks and financial markets, but one piece reaches every residential closing.

That piece is the Consumer Financial Protection Bureau. Dodd-Frank created the Bureau and handed it the consumer mortgage rules that had been scattered across other agencies. Truth in Lending rulemaking came over from the Federal Reserve. RESPA enforcement came over from HUD. Equal Credit Opportunity Act enforcement moved to the Bureau as well.

Dodd-Frank also told the Bureau to stop making borrowers read two overlapping stacks of paperwork for the same loan. The result is the integrated disclosure rule the industry calls Trid, which produced the Loan Estimate a borrower receives after applying and the Closing Disclosure delivered before signing. For a broker, the day to day effect of Dodd-Frank is not a theory of financial regulation. It is a calendar. Federal delivery and waiting periods now decide how soon a financed sale can realistically close, and a late change to the loan can push that date even when nobody did anything wrong.

How It Works in Washington

Dodd-Frank is federal, so Washington's role is to add state disclosure duties on top of it and to license the people making the loans. Chapter 19.144 RCW, the state's mortgage lending and homeownership act, was enacted in 2008, two years ahead of Congress. RCW 19.144.020(1) says a residential mortgage loan "may not be made unless a disclosure summary of all material terms ... is placed on a separate sheet of paper and has been provided by a financial institution to the borrower within three business days following receipt of a loan application," and RCW 19.144.020(2) requires that summary to state fees and discount points, the interest rate, broker fees, whether the loan carries prepayment penalties, and whether it contains a balloon payment.

State and federal law are wired together rather than simply stacked. RCW 19.144.020(4) provides that "disclosure in compliance with the real estate settlement procedures act, 12 U.S.C. Sec. 2601, and Regulation X, 24 C.F.R. Sec. 3500 ... shall be deemed to comply with the disclosure requirements of this section." Washington's Mortgage Broker Practices Act runs on a matching clock, since RCW 19.146.030(1) requires a mortgage broker or loan originator to give a borrower a full written disclosure itemizing all fees and costs "within three business days following receipt of a loan application."

The deadlines a listing broker schedules around come from the CFPB rule Dodd-Frank authorized. The lender must deliver the Loan Estimate no later than the third business day after receiving the application, and the borrower must receive the initial Closing Disclosure no later than three business days before consummation. Our explainer on loan qualification letters and our overview of financing basics for new Washington brokers put those dates in working context.

Example

Renee Alvarez applies on Tuesday, March 3 for a $520,000 loan on a Vancouver, Washington duplex priced at $650,000. Her lender must deliver the Loan Estimate no later than the third business day after the application, so it goes out Friday, March 6. Washington's own disclosure summary runs on the same three business day clock under RCW 19.144.020.

Closing is set for Friday, April 17. To meet the federal rule Renee has to receive the initial Closing Disclosure no later than three business days before that, which is Tuesday, April 14. It arrives Monday, April 13 showing an APR of 6.500 percent. On Wednesday, April 15 her rate lock expires, the lender relocks, and the APR moves to 6.875 percent, so the disclosed APR is no longer accurate. A corrected Closing Disclosure has to reach her three business days before consummation, and the closing is rescheduled for Monday, April 20. Renee and her broker lose a weekend to a timing rule Congress wrote in 2010.

Common Mistakes and Exam Traps

• Dodd-Frank is a federal statute. It did not repeal RESPA or the Truth in Lending Act; it moved rulemaking and enforcement over those laws to the CFPB.
• TRID is the rule and the CFPB is the agency. Dodd-Frank is the law that created the agency and directed it to combine the two disclosure regimes.
• The Loan Estimate goes out no later than three business days after application. The Closing Disclosure must be received at least three business days before consummation. The two clocks run in opposite directions and are easy to swap.
• Washington has its own three business day disclosure statute for residential mortgage loans (RCW 19.144.020). It is separate from the federal rule, though compliance with RESPA and Regulation X satisfies it.