Closing Disclosure

CFPB issues a factsheet on title insurance disclosures

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Also updates disclosure FAQs

cfpb-logoThe Consumer Financial Protection Bureau (CFPB) has recently issued two documents that may help closing attorneys.

The first document is a factsheet on TRID title insurance disclosures. This document addresses differences between state disclosures and TRID disclosures for simultaneous issue rates. It also addresses the situation where the seller pays for title insurance.

The second document is an updated list of frequently asked questions (FAQs) on the TILA-RESPA Integrated Disclosures. The additions address seller paid costs, total payments on the closing disclosure, accounting for negative prepaid interest and whether a lender may require the consumer to sign and return the Loan Estimate and Closing Disclosure.

CFPB announces top TRID mistakes

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cfpb-logoWe’re learning for the first time what the CFPB considers the top mistakes being made by lenders in mortgage originations under TRID. CFPB’s September 2017 Supervisory Highlights reports on the Bureau’s first round of mortgage origination compliance examinations. Prior to these examinations, the Bureau refused to provide a grace period for lender compliance but stated publicly that it would be sensitive to the progress made by lenders who focused on making good faith efforts to comply with the rule.

Some of these mistakes may be attributed, at least from the viewpoint of the lenders who were pinpointed by CFPB, to settlement service providers (real estate lawyers in South Carolina), so we should pay close attention to this list. Failure to pay attention to it may place some of us squarely on lenders’ naughty lists.

This report indicates most lenders were able to effectively implement and comply with the rule changes, but the examiners did find some violations. The following list contains the most common mistakes:

  • Amounts paid by the consumers at closings exceeded the amounts disclosed on the Loan Estimates beyond the applicable tolerance thresholds;
  • The entity or entities failed to retain evidence of compliance with the requirements associated with Loan Estimates;
  • The entity or entities failed to obtain and/or document the consumers’ intent to proceed with the transactions prior to imposing fees in connection with the consumers’ applications;
  • Waivers of the three-day review period did not contain bona fide personal financial emergencies;
  • The entity or entities failed to provide consumers with a list identifying at least one available settlement service provider in cases where the lender permits consumers to shop for settlement services;
  • The entity or entities failed to disclose the amounts payable into an escrow account on the Loan Estimate and Closing Disclosure when consumers elected to escrow taxes and insurance;
  • Loan Estimates did not include dates and times at which estimated closing costs expire; and
  • The entity or entities failed to properly disclose on the Closing Disclosures fees the consumers paid prior to closing.

The report boasts that the CFPB examiners worked in a collaborative manner with one or more of the entities to identify the root causes of the violations and to determine appropriate corrective actions, including reimbursements to consumers.

The report also covered the Bureau’s supervisory activities outside the mortgage origination arena and indicated nonpublic supervisory resolutions have resulted in total restitution payments of approximately $14 million to more than 104,000 consumers during the review period (January through June, 2017). The CFPB also touted resolutions of public enforcement actions resulting in about $1.15 million in consumer remediation and an additional $1.75 million in civil penalties during the review period.

Despite the notion that the CFPB may be in disfavor in the Trump administration, it remains a powerful body in our industry. Compliance with its directives is crucial to remain in the residential closing business at this point.

CFPB rules have been revised

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Are we now free to share Closing Disclosures with real estate agents?

cfpb-logoThe CFPB recently issued amendments to its rules governing residential loan closings, but it did not settle the debate about whether Closing Disclosures can be shared with real estate agents. Traditionally, real estate agents were provided settlement statements both before closings, to give them the opportunity to explain the numbers to their buyer and seller clients, and after closings, to enable them to close MLS listings.

Since we have been operating under the CFPB rules and generating Closing Disclosures, we have struggled with the insistence on the part of real estate agents to receive those documents and the reluctance on the part of lenders to share them.  Most of us have resolved this conflict by providing real estate agents with separate settlement statements, such as ALTA’s Settlement Statements, which are similar to our prior HUD-1 Settlement Statements. It took us awhile to figure out that Closing Disclosures are not traditional closing statements and do not facilitate disbursement. Once we realized separate settlement statements are actually needed to fully inform borrowers, sellers and real estate agents, this issue became less important.

The CFPB has indicated it has received many questions about sharing Closing Disclosures with third parties. The amendment says:

“(T)the Bureau notes that such sharing of the Closing Disclosure may be permissible currently to the extent that it is consistent with (the Gramm-Leach-Bliley Act) and Regulation P and is not barred by applicable State law. However, the Bureau does not believe that expansion of the scope of such permissible sharing would, in this rulemaking, be germane to the purposes of Regulation Z.”

Lenders will likely continue to refuse to allow sharing of Closing Disclosures in light of this clear-as-mud directive. Most lenders currently state that the consumer may provide the Closing Disclosure to real estate agents if he or she chooses to do so. That rule is not likely to change.

Wells Fargo distributes new settlement agent communication

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Note: Settlement agents are scheduled to be re-evaluated

Wells Fargo delivered a memo entitled “News for Wells Fargo Settlement Agents” on March 23. The first paragraph cryptically announced that future communications will detail the Uniform Closing Dataset (UCD) that will become effective for lenders in 2018.

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For insight into the UCD, review Fannie Mae’s or Freddie Mac’s websites. Briefly, the UCD is going to be a common industry dataset to allow information on the Closing Disclosure to be communicated electronically. Fannie Mae and Freddie Mac have developed the UCD at the direction of the Federal Housing Finance Agency in an effort to enhance loan quality and consistency through uniform loan date standards. Stay tuned for more information on this topic and lenders gear up to comply.

The Wells Fargo memo also touted continued expansion of settlement agents who are using Closing Insight™.  Settlement agents who are just getting started were asked to take advantage of the support available at RealEC’s Closing Insight Resource Center at http://www.closinginsightresourcecenter.com or to contact the company at CISupport@realec.com or 800.893.3241. I encourage all South Carolina closing attorneys to get up to speed on this system as soon as possible.

The serious news from Wells Fargo, however, relates to a new effort to evaluate settlement agents.

The memo warned that Wells Fargo will evaluate the population of settlement agents who have closed loans within the past twelve months for problems such as missing documents, execution errors and other frequent problems that require curative work. As a result, settlement agents may receive letters indicating they are being removed from Wells’ list of approved settlement agents.

Processes are in place, however, to accommodate the customer’s choice for a settlement agent who is not on the approved list. Apparently, a new approval process will be instituted, but no detail on this process is provided.

house made of cashThe memo further indicates that attorneys’ ability to act as counsel for customers will not be impacted.  I don’t read this last directive to mean that attorneys who are not on the approved list will be in a position to close loans. They will only be in a position to dispense legal advice, if I am interpreting this correctly.

Settlement agents with questions are encouraged to communicate with Wells at WellsFargoSEttlementAgentCommunicatons@wellsfargo.com. I urge anyone who is interested in continuing to close Wells Fargo loans to hang onto this information.

Finally, the memo is requesting acknowledgement of Master Closing Instructions from all active and approved settlement agencies. Requests for this acknowledgement are coming from Wells Fargo in the form of e-mails to settlement agents. Please respond!

All lenders are beginning to hold settlement agents to higher standards. South Carolina closing attorneys are encouraged to stay abreast of changes and train, train, train staff members.

And, as always, contact your title insurance companies for insight into these matters.

New Settlement Agent Communication from Wells Fargo

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Seller CD must be provided to Wells prior to disbursement

Wells Fargo communicated with its settlement agents (closing attorneys in South Carolina) by memo dated September 22. In case you missed it, you can read it in its entirety here.

The biggest news is that Wells will now require a copy of the seller Closing Disclosure along with the other documents required prior to disbursement. Apparently, receipt of the seller CD has been a challenge, necessitating the procedural modification.

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Another challenge has been the process for handling changes to the borrower’s CD. The memo stated that any changes known prior to closing, including changes to the closing numbers, the closing date and the disbursement date, must be communicated to the Wells Fargo closer.  Wells Fargo’s closer will provide an updated borrower CD and any other updated documents for closing.

Any changes detected at or post-closing should be communicated to:  SAPostClosingCommunications@wellsfargo.com.

The memo also discussed the phased rollout in progress for delivering training materials and other support for the use of Closing Insight™.  We encourage closing attorneys to read and comply with this information to avoid being left out when this process is fully implemented.

Good News From ALTA

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CFPB said lenders can’t “unilaterally” shift TRID liability

lane shiftIn news that will be well received by South Carolina residential closing attorneys, ALTA reported on April 8 that CFPB Director Richard Cordray stated that lenders may not unilaterally shift liability for errors on TRID mortgage disclosures to third parties.

The report indicates that U.S. Senator Robert Corker of Tennessee had written a letter to Director Cordray asking whether creditors, acting alone, may shift liability to settlement agents for Closing Disclosure errors. Director Cordray responded in writing, “While creditors may enter into indemnification agreements and other risk-sharing arrangements with third parties, creditors cannot unilaterally shift their liability to third parties and, under the Truth in Lending Act, alone remain liable for errors on the Know Before You Owe mortgage disclosures.”

ALTA’s report further states that Director Cordray wrote that lenders and settlement agents are free to decide how to divide the responsibility and risk when implementing the new requirements through contracts.

stay tunedWe have heard from closing attorneys across South Carolina that lenders are taking varying approaches in their attempts to shift or share TRID liability with closing attorneys. We caution closing attorneys to read letters and closing instructions carefully and to negotiate or strike objectionable provisions. Pay particular attention to provisions that would violate attorney ethical obligations. Don’t agree, for example, that client confidences will be revealed to creditors.

Who You Gonna Call?

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Even five months into TRID implementation, there is still confusion about
who is allowed to receive the CD and Closing Statement

paperwork confusionWe’re all crystal clear that the borrower must be provided with the new CFPB compliant Closing Disclosure. We’re clear that there are very specific rules about when that document must be delivered to facilitate the scheduled closing. We know that most of the large national lenders are preparing and delivering the Closing Disclosure themselves while many of the local and regional lenders are still relying on closing attorneys to prepare and deliver this document.

What remains uncertain in some areas is how to deliver the necessary closing numbers to real estate agents, sellers and, when it comes to seller numbers, to lenders.

Real Estate Agents: There is no doubt that real estate agents need the numbers. They typically provide valuable guidance to their buyer clients on the accuracy of the numbers in advance of and during closings. They are also required to retain copies of closing statements in their files. But the Closing Disclosure now contains much more information than the HUD-1 Settlement Statement, and it is a common belief that delivery by a lender or closing agent to a real estate agent violates the buyer’s right to protection of personal information.

What is the solution?  There are two lines of thought. Some believe the buyer should sign a waiver allowing the lender and settlement agent to provide the Closing Disclosure to the buyer’s real estate agent. Several lenders, however, have stated that they will not act on waivers of this type.

The other line of thought is that the real estate agents (both the buyer’s agent and the seller’s agent) can be provided with a closing statement without violating anyone’s privacy. All of the closing software programs have closing statements available for this purpose. American Land Title Association has created forms for this reason, and most lawyers also have versions they have previously used for commercial and residential cash transactions.

Real estate lawyers in South Carolina need to prepare separate closing statements regardless of this dilemma. Our Supreme Court has made it clear that all the numbers in a closing must be properly disclosed to the parties. It took many of us months to wrap our brains around the fact that a Closing Disclosure does not contain all the numbers. It is not a closing statement and it is not a replacement for the HUD-1. It is also not a document from which we can disburse. We need a settlement statement that balances to a disbursement analysis to assure that our numbers are correct.

Sellers: The seller should be provided with the seller’s Closing Disclosure, which is prepared by the settlement agent and not the lender. But, again, this document does not reveal all of the numbers relevant to the closing, so the seller should also be provided with a settlement statement.

Lenders (as to Seller’s numbers): We have heard that lenders are having difficulty obtaining seller information from closing attorneys, but under TRID, settlement agents are obligated to provide the seller’s information to the lender. Lenders need this information to test the accuracy of the buyer’s information, for audit purposes and to be able to provide proper information to investors.hang in there

Five months out, we are all still working our way through TRID, and we will continue to work our way through the various issues as they arise. South Carolina lawyers can rely on friendly real estate lawyers on the Bar’s Real Estate Practices Section ListServ, which can be found here. And title insurance companies continue to obtain and disseminate information as issues arise. We’ll get through it!

American Land Title Association is Working for Us

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Letter to CFPB asks for clarity.

mountain climbers helping handAmerican Land Title Association’s January issue of TitleNews reports that ALTA reached out to the Consumer Financial Protection Bureau by letter dated Nov.23, asking for clarity in three areas of the TRID regulations.

The first area of concern is generating a great deal of angst among South Carolina closing attorneys, that is, the attempt by lenders to shift liability to settlement agents for all compliance issues, including compliance with the new federal law.

Here in South Carolina, we are seeing modified closing instructions that explicitly shift this liability to closing attorneys and often include indemnity language. The attorney is being asked to indemnify the lender for the liability the federal law has clearly imposed on lenders.

By the way, I urge South Carolina real estate lawyers to become members of the South Carolina Bar’s Real Estate Section. The Real Estate Section provides its members with access to its Listserv, which can be found at realestatelaw@scbar.org. The forum is a great place for South Carolina real estate lawyers to share ideas and frustrations as well as a place to seek information and advice from peers.

The frustration of real estate lawyers regarding this issue is obvious in that forum. It is a great place for lawyers to share their ideas as well as their frustration.

Michelle Korsmo, ALTA’s Executive Director, said in the Nov. 23 letter to the CFPB, “These instructions are in contrast to the clear public policy underpinning this rule, as well as language in the rule stating that lenders bear ultimate liability for errors on the Closing Disclosure form.” According to TitleNews, ALTA provided the CFPB with several examples of the offending closing instructions.

The second area of concern is the disclosure of title insurance premiums on the Closing Disclosure and particularly the very odd negative number that appearing for the cost of owner’s title insurance. The calculation methods of the CFPB seem to be dictating this negative number in many cases, but in what world is that logical? And how does that negative number supply clarity to consumers?

The third and final area of concern expressed ALTA’s Nov. 23 letter is the confusion surrounding seller credits on the Closing Disclosure. Lenders and closing attorneys are struggling with whether to list seller credits as individual line items on the CD or to consolidate them and disclose them under a general “seller credits” heading.

All of us in the industry should be appreciative of ALTA’s efforts to assist in this push for clarity. I urge South Carolina lawyers to join ALTA and to pay attention to and support its efforts in our behalf.

So You Say Ninety Percent of TRID Loans Contain Violations?

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Worse than rocket science? Perhaps.

thumbs downAccording to a news report from American Land Title Association, Moody’s Investors Services has written that several third-party firms found TRID violations in more than 90% of the loans that were audited.

ALTA states that Moody’s report indicates that this “informal feedback” was based on reviews of around 300 mortgages from around a dozen unidentified lenders, and that many of the violations were “only technical in nature”, like spelling errors. But Moody’s is apparently concerned that the secondary market may be affected by the sheer number of violations.

There appears to be a disconnect between this reporting and the perception of Director Richard Cordray of the CFPB. In a speech at the Consumer Federation of America, Director Cordray recently said that the housing industry’s concerns about TRID appear to have been “overblown”. He said that reports from industry participants across the market seem to be indicating that implementation of the new rule is going “fairly smoothly”. He even stated that the anxieties in the market were much like the predictions of technological disasters stemming from Y2K, which never materialized.

What do we, as South Carolina attorneys, do with this information?

  1. Take some comfort in the fact that we are not the only ones struggling with TRID.
  2. Do the best we can to comply with TRID rules.
  3. Do the best we can to comply with South Carolina Supreme Court requirements that we fully disclose all funds involved in closings. I believe we must prepare and deliver closing statements, in addition to TRID required Closing Disclosures, to make the proper disclosures. ALTA’s closing statements, which should be available on all the closing software programs, are excellent forms to use.
  4. Talk to each other about the struggles. Collectively, we should be able to resolve some of the problems.
  5. If you need backup on a position, call your title insurance company lawyers. They are hearing it all these days and may be able to help with a particular lender or an odd position.
  6. Lenders are attempting to shift the burden of compliance to closing attorneys through indemnity
    language being inserted in closing instructions or by separate letter. Closing attorneys should resist
    agreeing to this additional liability if at all possible. Negotiate! Be strong!

And if all else fails, I understand that NASA is taking applications for the next class of astronaut candidates. Maybe alternative employment is possible.

astronaut

 

Grace Period for TRID Enforcement? Sort of ….

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hourglassOn October 1, Director Richard Cordray of the CFPB, responded to a request* from the American Bankers Association (ABA) for clarification on how the TRID rules will be enforced in the first few months of implementation. The answer was complicated but ultimately signified examiners will initially look at the good faith efforts of lenders to comply.

The letter, which copied 17 industry trade associations, recognized the burden on the mortgage industry to make significant systems and operational changes and engage in extensive coordination with third parties. Initially, according to the letter, examiners will evaluate a lender’s compliance management system, implementation plan, staff training and overall efforts to comply, recognizing the scope and scale of the necessary changes. The letter stated:

 “Examiners will expect supervised entities to make good faith efforts to comply with the Rule’s requirements in a timely manner.”

As a vote of confidence, the letter concluded that this examination process will be similar to the agency’s approach after the January 2014 effective date of several mortgage rules, where the experience was “our institutions did make good faith efforts to comply and were typically successful in doing so.”

No time limit was stated for this initial examination methodology.

On October 6, Fannie Mae and Freddie Mac followed with announcements that they will not conduct routine file reviews for technical compliance with TRID but will evaluate whether correct forms are being used in the closing process. Fannie and Freddie expect lenders to make good faith efforts to comply with TRID. Failure to use the correct forms will be deemed a violation of the good faith effort standard.

Lenders were reminded that Fannie and Freddie have several remedies for a lender’s violation of law that may impair the ability to enforce notes and mortgages. But the announcements stated that the remedies will be used in two limited circumstances in connection with TRID: (1) where the required forms are not used; and (2) where a court of law, regulator or other authoritative body determines that a practice violates TRID and impairs the ability to enforce the note and mortgage or would results in assignee liability

No time limit was placed on this grace period.

On October 16, Federal Housing Administration’s (FHA) Office of Single Family Housing announced that it will not include technical TRID compliance as an element of its routine quality control reviews, except to determine that correct forms were used, until April 16, 2016.

Efforts are underway in Congress to establish a formal grace period until January 1, 2016. The Homebuyer’s Assistance Act has passed in the House and is up for a vote in the Senate.

*The request was made by the ABA to FFIEC, which is comprised of the Federal Reserve System, the Federal Deposit Insurance Corporation, the National Credit Union Administration, the Comptroller of the Currency, the CFPB, and the State Liaison Committee.