Quick note to get this information out quickly: Today the Consumer Finance Protection Bureau announced that it will be issuing a proposed amendment to delay the effective date of the new mortgage disclosure rule from August 1 to October 3.
More to follow!
Ethics Opinion gives them a thumbs up!
Savvy residential dirt lawyers continue to explore innovative marketing methods. A recent Ethics Advisory Opinion (15-02) issued by the Ethics Advisory Committee of the South Carolina Bar blessed the following scenario, with a few caveats:
“Law Firm would like to pursue a practice referred to as “Donut Friday,” where an employee of Law Firm visits the Firm’s existing vendors (e.g., banks, real estate agencies, etc.) and delivers a box of donuts to these vendors. Included with the box of donuts are a dozen koozies bearing the name of Law Firm, as well as a fee sheet, a pamphlet containing information about Law Firm and its staff, and a coupon for $50.00 off Law Firm’s fee for a consultation or real estate closing. None of the marketing materials is addressed or directed to any one person, nor does the material request that existing vendors refer business to Law Firm, although the intent is to receive referrals.”
The Committee stated as a preliminary matter that the mere delivery of gifts or other marketing materials to a business generally without delivery to specific individuals does not constitute solicitation. For that reason, Rule 7.3 of the Rules of Professional Responsibility does not apply. Enclosing law firm materials in a donut box does constitute lawyer advertising, making the remainder of the advertising and communication rules (7.1, 7.2, 7.4 and 7.5) apply.
Because the donut box recipients are existing law firm vendors who refer closing business to the firm, the specific rule at play, according to the Committee, is Rule 7.2(c), which prohibits giving “anything of value to a person for recommending the lawyer’s services.” The Committee specified that as long as the weekly donut boxes are delivered regardless of whether the lender or real estate agency had referred clients to the law firm that week, and regardless of how many, then the requisite quid pro quo for a Rule 7.2 (c) violation does not exist. The rule would be violated, however, if the delivery of donuts was contingent on the referral of business.
The Committee said that only the donuts, koozies and coupons (not the fee sheets or pamphlets) would be considered things “of value” under Rule 7.2 because the rule contemplates value to the recipient and not cost to the sender. Finally, the Committee stated that although the Rules of Professional Conduct are “rules of reason”, the prohibition on giving “anything” of value contains no explicit de minimis exception.
Kudos to the law firm that devised this marketing ploy and received the blessing of the Ethics Advisory Committee!
It will produce and deliver Closing Disclosures
BB&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.
BB&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.
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.
Residential 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:
“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!
Dirt lawyers: Your CPA should be able to assist!
The 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!
Prepare now for a smooth transition to the new CFPB regulations and forms
Our company has put together some general information about the CFPB regulations that become effective on August 1. I’m sharing a few tips with the letstalkdirtsc.com audience in an effort to assist with a smooth transition.
What transaction types are affected and exempt? The new rules and forms apply to most closed-end consumer credit transactions secured by real property. The following types of loans are affected:
Consumer loans exempted from the new rules and forms are:
Creditors will be required to use a TILA disclosure and Good Faith Estimate (GFE), and closing attorneys will be required to use a 2010 HUD-1 Settlement Statement on the exempt loans.
Loans in progress (applications submitted prior to August 1, 2015) are not subject to the new rules or the new forms.
What are the new rules and forms? On November 20, 2013, the CFPB announced the completion of the new integrated mortgage disclosure forms along with their regulations (RESPA Regulation X and TILA Regulation Z) for the proper completion and timely delivery to the consumer.
The Loan Estimate – Currently, borrowers receive two forms from their lender at the beginning of the transaction: the GFE and initial TILA disclosure. For loan applications taken on or after August 1, the creditor will instead use a combined Loan Estimate form.
The Closing Disclosure – The HUD-1 Settlement Statement and the final TILA disclosure form have been combined into a single Closing Disclosure form. This new five-page form contains many loan terms and provisions in addition to the closing figures. Several earlier letstalkdirtsc.com blogs discussed which lenders that have announced they will prepare and deliver the Closing Disclosure. It appears that in all cases, closing attorneys will prepare the seller’s Closing Disclosure and a separate closing or disbursement statement to facilitate disbursement.
How will the timing of a closing be impacted by Closing Disclosure delivery? The new rule requires borrowers to have three business days after receipt of the Closing Disclosure for review. The three-day review starts on the receipt of the form by the borrower. Absent some positive confirmation of receipt such as hand delivery, the form is “deemed received” three days after the delivery process is started (i.e., mailing). As a result, the combination of the delivery time period and the review time period results in six business days from mailing to closing.
After delivery of the initial Closing Disclosure, the following changes would require a re-disclosure and a new waiting period:
How will the communication of title and closing figures be handled? Lenders will continue to need accurate estimates of title and closing figures. Preparation of the Closing Disclosure will require a collaborative effort between lenders, closing attorneys and other vendors and may require fees to be submitted as early as two weeks prior to closing. Several lenders have announced that they will use electronic portals to send and receive information, eliminating the use of mail, e-mail and faxes between lenders and closing attorneys.
How are title charges reflected on the new forms? The list of charges involving title insurance and closing activities must be grouped together and preceded by the word “Title”.
The CFPB requires that the full premium, not the discounted simultaneous issue premium, must be disclosed for the loan policy. The owner’s policy premium will be shown as “optional” and will be the total cost of the owner’s policy discounted by the cost of the loan policy and adding the simultaneous issue premium. Confusing? Yes!
The line numbers have been removed from the HUD-1 form, and there are now seven fee areas:
Charges within each of these major groupings are listed alphabetically. Columns are provided to separate charges of the buyer, the seller, and others, as well as columns for payments both before and at closing.
Software and title insurance companies are doing extensive training in the form of seminars, webinars and written communications. If you intend to be a residential dirt lawyer after August 1, get yourself and your staff trained!
… AND indicates it will produce and deliver Closing Disclosures.
Making 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.
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:
Who 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.
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.
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.
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.
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!
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.
They 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.
The 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.
Title 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.
Line 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:
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.
Clients 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!
Don’t get excited about the rumor!
When 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 title
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!
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