Banking

Be Vigilant to Prevent “Business E-mail Compromise” Scams

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fraud alertWire fraud is on the rise! Train your staff!

United States business e-mail accounts are under attack by sophisticated fraudsters.

The FBI, Financial Services Information Sharing and Analysis Center (FS-ISAC) and the United States Secret Service issued a financial services bulletin on June 19 warning against increasing wire transfer fraud against U.S. businesses referred to as “Business E-mail Compromise” (BEC) scams.

The bulletin warned that BEC is a type of payment fraud that involves the compromise of legitimate business e-mail accounts for the purpose of conducting unauthorized wire transfers.  Many compromised accounts belong to business CEOs or CFOs. The funds are primarily sent to Asia, but funds involved in these schemes have been diverted to locations around the globe.

BEC fraud compromises e-mail accounts through phishing, social engineering or malware used to obtain the user’s password. Once an e-mail account is compromised, fraudsters begin accessing and reviewing e-mails, including meeting and calendar information, contacts lists, and information concerning business partners, vendors and customers.

This activity enables the fraudsters to interject themselves into normal business communications masquerading as the person whose account was compromised. This reconnaissance stage lasts until the actor feel comfortable enough to send wire transfer instructions using either the victim’s e-mail or a spoofed e-mail account.   E-mails are typically sent to an employee with the ability to wire funds. A common tactic is to wait until the victim is away on legitimate business travel to send new wire instructions, making it more likely that individual would use e-mail to conduct business and making it more difficult to verify the transaction as fraudulent while the victim is in transit. The requests will sometimes state that the wire transfer is related to urgent or confidential business matters and must not be discussed with other company personnel.

Other incidents involve the compromise of a vendor or supplier’s e-mail account with the intention of modifying the bank account associated with that business. This scheme may also be labeled “vendor fraud” and often involves last minute changes of the bank and account number for future payments.

red-phoneThere is a relatively easy fix: all wire information received via e-mail should be verbally verified using established business telephone numbers.

Other suggestions to guard against this fraud are:

  1. Limit the number of employees with authority to handle wire transfers.
  2. Have a second employee designated as an approver for any wire transfer requests.
  3. Be careful opening attachments and clicking on links even if the e-mail appears to be from a legitimate source if you believe wire instructions may be included in the communication.
  4. Look out for e-mails that contain significant changes in grammar, sentence structure and spelling compared to previous communications.
  5. Look out for suspicious communications particularly toward the end of the week or the end of a business day. The fraudsters will have more time to access and divert funds.
  6. Maintain a file, preferably in non-electronic form, of vendor contact information, including telephone numbers.
  7. Look out for “spoofed” e-mail addresses that are made to look like the real addresses. Fraudsters use tactics like character substitution, addition and omission to make e-mails addresses appear legitimate. Here are some examples using a Chicago Title address, richard.roe@chicagotitle.com
  • roe@chicag0title.com
  • roe@chicagotit1e.com
  • roe@chicagotitlee.com
  • roe@chicagottle.com
  • roe.chicagotitle@gmail.com
  • roa@chicagotitle.com
  1. Be wary of wire transfers to countries outside of normal trading patterns.

ic3 circleIncidents should be reported to local offices of the FBI or Secret Service or to:

Dirt lawyers, protect your businesses and your clients’ funds by following these critical guidelines!

Another Lender Communication to Settlement Agents…

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… And a denial from the CFPB.

newsBank of America answered several frequently asked questions from settlement agents by memo dated June 9.

Significantly, BofA indicated that agents will not be allowed to accept its title or closing orders if they are not registered with Closing Insight™. Because BofA and several other lenders will require Closing Insight™,  South Carolina closing attorneys who have not yet registered should follow this link to do so.

Asked whether BofA will require the use of ALTA model settlement statements, the bank responded that it prefers the ALTA model form if a closing attorney chooses to use a settlement statement to supplement the Closing Disclosure (“CD”), but specified that the settlement statement figures must reconcile to the CD and a copy of the settlement statement must be provided to BofA. The memo also stated that all revised fees and costs will require both bank approval and an amended CD. In other words, fees and costs cannot be revised by simply supplementing the CD with a settlement statement.

ALTA’s settlement statements are available for review and use at this link.

The memo confirmed our thinking that separate CDs will be provided to the buyer and the seller. BofA added that the buyer and seller will not sign the same form nor see the contents of the other party’s CD. Further, BofA will instruct the closing attorney to prepare and deliver the seller’s CD and to provide copies of CDs to the real estate agents.

Finally, the bank clarified its process for making post-disbursement fee modifications. If the closing attorney identifies the need for a change in the numbers reflected on the CD, the attorney must request that the “collaboration session” be reopened in Closing Insight™, and the bank will review the update made by the attorney to determine whether a revised CD is necessary. The party in possession of any excess funds will be responsible for sending the funds to the buyer/borrower, while BofA will prepare and send the revised CD to the buyer/borrower. The closing attorney will be responsible for revising and delivering the seller’s revised CD, if necessary.

cfpb-logoIn related news, on June 3, the CFPB released a fact sheet in response to “much information and mistaken commentary” surrounding perceived closing delays that will be caused by the implementation of the new rules. The CFPB denied that the new CDs will delay closings “for just about everybody.” In response to the belief that any change in the CD will cause a new 3-day review period, the CFPB clearly stated that only the following matters will trigger an additional 3- day wait:

  1. The new APR (annual percentage rate) increases by more than 1/8 of a percent for fixed-rate loans or ¼ of a percent for adjustable loans. A decrease in the APR will not require a new 3-day review if it is based on changes to interest rate or other fees.
  2. A prepayment penalty is added, making it expensive to refinance or sell.
  3. The basic loan product changes, such as a switch from fixed rate to adjustable interest rate or to a loan with interest-only payments.

The following circumstances will not require a new 3-day review, according to the fact sheet:

  1. Unexpected discoveries on a walk-through such as a broken refrigerator or a missing stove, even if they require seller credits to the buyer.
  2. Most changes to payments made at closing, including the amount of the real estate commission, taxes and utilities proration, and the amount paid into escrow.
  3. Typos found at the closing table.

The CFBP’s denial notwithstanding, we are all naturally concerned about other matters that will cause delays during the transition period, particularly the steep learning curve that must be overcome by everyone involved in closings. But we will all work hard to get through the transition period together! We’re predicting that closings will be much smoother by the beginning of 2016.

BB&T Follows the Lead of Other Large Lenders

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It will produce and deliver Closing Disclosures

BB&T logo 2BB&T announced on May 26 that it will be responsible for completing and delivering borrowers’ Closing Disclosures after the Consumer Financial Protection Bureau’s (CFPB’s) TILA-RESPA Integrated Mortgage Disclosures (TRID) rule becomes effective on August 1.

By making this announcement, BB&T joins Bank of America, Chase, Citi, Wells Fargo, SunTrust and Freedom Mortgage in removing the responsibility for preparing the borrower’s settlement statement from the hands of settlement agents (closing attorneys in South Carolina). Closing attorneys will prepare the seller’s CD as well as other forms necessary for disbursement. It is clear that the borrower’s CD will not contain sufficient information for disbursement, which will continue to be the responsibility of the closing attorney.

Like the other lenders, BB&T confirmed in its announcement that it will continue to work with closing attorneys to determine the fees and other information required for the Closing Disclosure.

stay tunedBB&T also announced, like several other large lenders, that it will use the web-based portal, Closing Insight™, to gather the information and data required to complete the CD. Closing attorneys were encouraged to register with Closing Insight™ immediately.

BB&T promised to provide further communications and training to settlement agents prior to August 1.

Heads Up Residential Dirt Lawyers: Use Engagement Letters!

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August 1 changes will make them even more important.

Lenders will no doubt be more in control of the closing process when the CFPB rules take effect in August. Several major lenders have announced that they will produce and deliver the borrower’s Closing Disclosure, the form that will replace the HUD-1. This form will be delivered to borrowers at least three business days prior to closing. This change may limit the closing attorney’s involvement with clients early in the closing process.

house parachuteResidential real estate lawyers will need to use engagement letters more than ever to establish that important attorney-client relationship, to explain the new closing environment and to quote fees and costs. These matters are too crucial to leave in the hands of lenders!

Also, a major change in the treatment of owner’s title insurance by the CFPB will require that attorneys explain the importance of the one document in the stack of closing papers that protects the purchaser. An engagement letter sent early in the process is the ideal place for this essential explanation. The closing table may be too late!

The CFPB will require that the full premium, not the discounted simultaneous issue premium, must be disclosed for the loan policy on the CD. The owner’s policy premium will be shown in the “Other” section of the CD and will be reflected as “Optional”.  The cost of the owner’s policy will be the total premium discounted by the cost of the loan policy and adding the simultaneous issue premium.  Some lenders may even show the full premium for the owners and loan policies on page two of the CD and a “rebate” for the discount on page 3. Confusing?  Definitely!

Purchasers strapped for funds may be tempted to skip this “optional” charge. Attorneys will need to explain how title insurance protects their clients. Savvy attorneys realize that owner’s title insurance protects them, too. It has even been suggested that it may be malpractice for an attorney not to recommend owner’s title insurance.

In this environment, I’m providing my dirt lawyer friends with a couple of paragraphs that can be edited to explain the importance of owner’s title insurance in engagement letters:

house protection hands“Title insurance protects the ownership of your home. The purchase of a home may be the largest transaction you’ll make during your lifetime. For a relatively low, one-time premium of $____, you can be protected against legal problems over property rights that could cost thousands of dollars, and even result in the loss of your home.

Lender’s title insurance is required for this transaction, but it does not protect your equity. You must purchase owner’s insurance for that valuable protection. We will perform a title examination for you, but the most thorough and competent title examination cannot protect against loss from hidden title defects created by misfiling and misindexing in the public records. Risks not created in the public records, such as fraud and forgery, are also covered by title insurance. Dollar for dollar, an owner’s title insurance policy is one of the most cost effective forms of insurance available to homeowners. I highly recommend that you purchase an owner’s policy and will make it available to you unless you let me know otherwise.”

When the closing process changes, let’s make sure important relationships are established and clients are protected early in the closing process!

Three New Lender Announcements in Early May

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They keep rolling in as August 1 approaches!

town crierWe’re 60 business days away from implementation of TRID, and lenders continue to make announcements about how they will approach the closing process in the new environment. I am committed to keeping South Carolina closing attorneys informed about these continuing revelations, so here is a synopsis of the most recent developments.

Freedom Mortgage announced on May 7 that it will prepare and deliver the borrower’s Closing Disclosure and will employ Closing Insight™ as its method of exchanging information with settlement agents (closing attorneys in South Carolina). Other methods of exchanging information (e-mail, fax) will no longer be used, and closing attorneys were encouraged to sign up for this information portal by visiting www.closinginsight.com.

Chase Mortgage Banking recently repeated that it will deliver the borrower’s CD and will provide a copy of that document in the closing package. The closing attorney will prepare and deliver the seller’s CD and will provide Chase with a copy.

Chase stated it will rely on closing attorneys for transaction numbers such as seller credits, broker’s commissions, seller and purchaser attorneys’ fees, real estate agent bills, external mortgage payoffs, adjustments, prorations, taxes, recording fees and title fees. All of this information should be given to Chase ten days prior to closing.

Chase also stated that it will continue to use encrypted secure email (iSentry and/or Voltage) to provide documents to closing attorneys.

Bank of America announced on May 6 that closing attorneys should register with Closing Insight™, but that registration will not insure a place on BofA’s “Written List of Providers” (WLP). Those interested in being including on the WLP should apply at www.bankofamerica.com/suppliers, but applying does not insure that applicants will be added to the list. BofA representatives will engage prospective candidates for consideration as opportunities for expanding the supplier base become available. Those currently on the WLP do not need to reapply.

BofA also announced that it will absorb the cost of Closing Insight™. To our knowledge, no other lender has made a similar announcement.

It is encouraging that lenders continue to think through their processes and to provide us with additional information. The more knowledge we have up front, the fewer surprises we will experience after August 1. I promise to continue to distribute this news as it is announced to the letstalkdirtsc.com audience.

Accountants Develop ALTA Best Practices Guidelines

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Dirt lawyers: Your CPA should be able to assist!

accountant guyThe American Land Title Association announced on April 28 that the American Institute of Certified Public Accountants (AICPA) has issued guidelines for CPAs to verify whether closing attorneys comply with ALTA’s Best Practices.

The guidelines provide a uniform framework to ensure CPAs will perform ALTA Best Practices compliance testing and reporting in the same manner and in accordance with AICPA standards. By engaging a CPA who will use the new guidelines, closing attorneys should be confident about the quality of the assessment process.

We are not aware of any lenders doing business in South Carolina who have indicated at this point that they will require third party certifications. However, Mississippi based regional BancorpSouth announced in early March that its approved closing agents must comply with Best Practices through a certification from an independent third party vendor acceptable to the bank. The deadline for obtaining the certification was stated to be July 31.

Wells Fargo announced it supports ALTA’s Best Practices as sound business practices that should already be in place. Wells stated in a memorandum to its closing agents that completing a certification by August 1 will not be a requirement, but the bank hopes closing agents will, at minimum, have already completed a self-assessment and addressed any identified gaps by that date.

SunTrust Mortgage announced that it will require closing agents to complete an ALTA Self-Assessment no later than July 1, 2015.

Lenders will likely refine their requirements as we get deeper into implementation. It would not be surprising to hear that any lender who does business in South Carolina will require third party certifications, particularly since CPAs are now “in the loop” and able to make assessments.

The bottom line at this point is that all residential closing attorneys who plan to remain in the business should become Best Practices compliant as soon as possible so they will be able to meet any requirements along these lines that their lenders may impose.

If you need help with Best Practices compliance, call your title insurance company! They are able, willing and ready to assist!

SunTrust Requires ALTA Best Practices Compliance by July 1

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… AND indicates it will produce and deliver Closing Disclosures.

suntan lotionMaking a significant announcement with a tight deadline, SunTrust Mortgage revealed in an April 22 letter to its settlement service providers (closing attorneys in South Carolina) that it will require them to comply with ALTA’s Best Practices and to complete an ALTA Self-Assessment no later than July 1, 2015.*

The letter also announced that SunTrust, following the lead of Well Fargo, Bank of America, CitiBank and Chase, will produce and deliver Closing Disclosures to borrowers and will require closing attorneys to provide complete and accurate title and settlement charges up to two weeks prior to scheduled closing dates.

SunTrust also plans to handle Closing Disclosure revisions and expects closing attorneys to provide timely notice of any changes in the closing numbers, including changes that occur after closing.

Closing attorneys will be responsible for preparing and delivering the seller’s Closing Disclosure on purchase transactions. A signed copy of the seller’s Closing Disclosure will be required by SunTrust as a condition of funding approval.

SunTrust will require an attestation form from closing attorneys for each closing, confirming the ability to comply with the new rules and expectations.

* The letter directed closing attorneys to www.alta.org/bestpractices/index.cfm for more information on ALTA’s Best Practices and offered assistance from SunTrust via e-mail at TitleSettlementMgmt@SunTrust.com and mail at Title/Settlement Management, SunTrust Mortgage, Inc., Mail Code: VA-INSB-7882, 5600 Cox Road, Glen Allen, VA 23060.

Five things lenders need to know before August

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Dirt lawyers: Educate your lender contacts!

Our company has developed resources to equip dirt lawyers to educate lenders about how the CFPB will impact them beginning August 1.  I’m sharing a few tips with the letstalkdirtsc.com audience because everyone will benefit if lenders are prepared.

As we have traveled the Palmetto state talking to lawyers, real estate agents and lenders, we have learned that many of the local folks are not familiar with the new rules, even the significant players in the market. We understand the corporate offices of national lenders may not have pushed this information down to the local level at this point. Any lawyer who will provide valuable information to local contacts now will be perceived as an important partner!

This is a primer, a very basic beginning point. As the software companies complete their updates, everyone involved will be trained on the details of the new rule and forms.  For now, let’s give our lender partners the following information:

1 flapWho will be responsible for preparing the Closing Disclosure? The lender will be ultimately responsible for preparing the CD (the document that replaces the HUD-1 and final TIL Disclosure). Four national lenders, Bank of America, CitiBank, Wells Fargo and Chase, have announced that they will prepare the CD. We anticipate that smaller banks may continue to rely on closing attorneys to prepare this important document. Closing attorneys will be responsible for preparing the seller’s side of the CD in all cases.

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Who will be responsible for delivering the Closing Disclosure? The rule requires that the borrower must receive the CD three days prior to closing. This actually translates to delivery six days prior to closing to accommodate transit time. The rule allows the closing attorney, at the lender’s discretion, to deliver the CD. The four banks who have announced that they will prepare the CD will also deliver it.

Closing Disclosure Delivery Timeline Chart

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How will closing attorneys and lenders communicate information contained in their respective systems? The big banks will most likely use some form of electronic communication. Some have already announced that they will use Real EC’s Closing Insight™ Most closing attorneys will work with settlement software companies (such as SoftPro) to connect with these systems. Regardless, information will have to be exchanged earlier to accommodate the delivery requirements of the CD.  Some experts have predicted that the numbers will have to be exchanged between lawyers and lenders no later than ten days prior to closing.

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Who will make changes to the CD? Changes to the CD may occur prior to closing, necessitating adjustments, re-printing, and delivery of the corrected CD at closing. Lenders and lawyers will have to discuss who will make the pre-closing changes. Changes to the settlement numbers on the CD may also occur after closing, requiring preparation and delivery of a revised CD. For example, if recording fees change, the CD will have to be revised. Previously, lawyers had the responsibility for these post-closing changes. Under the new rule, the lenders have primary responsibility, but they may delegate this responsibility to closing attorneys.

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How will closing attorneys communicate title and settlement fees for use in the new forms? Lenders will continue to need accurate estimates of title and settlement fees for the preparation of the Loan Estimate and the Closing Disclosure. In addition, for transactions in which an owner’s policy will be issued, the rule prescribes special mathematical calculations for the disclosure of the owner’s and lender’s title insurance premiums, which may require receipt of rates for both a stand-alone and simultaneously issued lender’s policy, as well as the owner’s policy rate.

Good luck educating your referral sources!

Five Things Real Estate Agents Need To Know Before August

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 Dirt lawyers: Educate your real estate agents!

Our company has developed resources to equip dirt lawyers to educate real estate agents about how the CFPB will impact them beginning August 1.  I’m sharing a few tips with the letstalkdirtsc.com audience because everyone will benefit if real estate agents are prepared.

This is a primer, a very basic beginning point. The CFPB will not significantly impact the day-to-day processing of sales, but buyers and sellers will look to real estate agents for general information about the new rules and forms, as well as the impact on the loan process and the closing. As the software companies complete their updates, everyone involved will be trained on the details of the Loan Estimates and Closing Disclosures.  For now, let’s give real estate agents the following information.

1They should be able to explain the Loan Estimate and Closing Disclosure before August 1. The Good Faith Estimate (GFE), a form required by the Real Estate Settlement Procedures Act (RESPA), and the initial Truth-in-Lending disclosure (TIL), a form required by the Truth-in-Lending Act (TILA) have been combined into a new form, the Loan Estimate. For loan applications taken on or after August 1, the three-page Loan Estimate will replace the GFE and the TIL and must be delivered within three business days of the application. The new five-page Closing Disclosure will replace the HUD-1 Settlement Statement and the final TILA form.

2The timing of a closing will be impacted by Closing Disclosure delivery.  The CFPB has determined that borrowers will be better served by having three days after receipt to review the Closing Disclosure prior to the closing. Absent a positive confirmation of receipt of the form (i.e., hand delivery), the form is “deemed received” three days after the delivery process is started (i.e., mailing). Several lenders have already announced that they will deliver the forms six days prior to closing.

Closing Disclosure Delivery Timeline Chart

3Title fees may need to be adjusted at closing and explained. The full premium for the lender’s title policy must be reflected on the Loan Estimate and the Closing Disclosure despite the fact that we have a “simultaneous issue” discount in our filed rates in South Carolina. The discount that title insurance companies in South Carolina offer lenders must be deducted from the charge for the owner’s policy. Also, the owner’s policy will be shown as “optional” on both documents. Closing attorneys may look to real estate agents to assist them in explaining the value of owner’s title insurance.

4Line numbers have been removed and there are now seven fee areas on the Closing Disclosure. The familiar line numbering on the HUD-1 will disappear. Instead, the fees and charges are placed on the Closing Disclosure in one of seven areas:

  1. Origination charges;
  2. Services borrower did not shop for;
  3. Services borrower did shop for;
  4. Taxes and other government fees;
  5. Pre-paids;
  6. Initial escrow payment at closing; and
  7. Other.

Individual charges within each of these major groupings are listed alphabetically. Columns are provided to separate charges owed by the buyer, seller and others, as well as columns for payments before and at closing.

5Clients will likely receive more than one Closing Disclosure. Since the buyer will receive the Closing Disclosure several days before the closing (and likely before the walk-through), the buyer will likely receive a new, adjusted Closing Disclosure at the closing. The CFPB has also mandated that changes in the financial numbers in any amount, must be re-disclosed, even post-closing.

Good luck educating your referral sources!

More CFPB News: A Possible Deadline Extension and a Useful Toolkit

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 Don’t get excited about the rumor!

gossipWhen Steven Antonakes of the CFPB spoke to a group of consumer bankers on March 25, he initiated a series of news articles and fueled a rumor mill among bankers and others that the August 1, 2015 date for implementation of the new integrated mortgage disclosures might be extended.

Mr. Antonakes was responding to a concern that some industry vendors may not be ready for the deadline.

Here’s the quote that caused the ruckus: “To the extent there is new information or we’re hearing directly from vendors that folks aren’t going to be ready…we should continue to talk about that. I can’t promise you (changes) but to the extent we will have a better understanding of the concerns, that is something we will consider.”

Lenders and others unquestionably got their hopes up that the August 1 date would be extended. But CFPB spokesman Sam Gilford quickly stated that the bureau has no current plans to delay implementation.

And Michele Korsmo, CEO of America Land Title Association said in an ALTA Advocacy Update of March 30, “Before anyone gets excited, I am telling you today that implementation of the new Integrated Mortgage disclosures will be required on August 1st, 2015.”

 Don’t count on the deadline being extended. Get ready!

Lenders continue to hope for leniency in the enforcement for a period of time after August 1, but no strategy for lenience has been implemented to date.

In other CFPB news, the bureau recently released a “Know Before You Owe” home loan toolkit, a comprehensive step-by-step guide to help consumers understand the closing process. The toolkit contains interactive worksheets and tips for obtaining additional information. I encourage closing attorneys to use this guide to educate clients.

We have all been concerned about owner’s titletoolbox insurance being called “optional” in the new disclosures. I was encouraged to see that this toolkit contains positive information about title insurance, including the fact that title insurance can safeguard the owner’s financial investment. Common claims were stated to be outstanding taxes and mechanics’ liens.

This toolkit might be a good tool for all of us!