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.

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.

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

 

The Strange Appearance of Title Insurance Rates on the New Closing Disclosure

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calculator paperIs this what the CFPB intended?

South Carolina closing attorneys are in the throes of their first closings under the new CFPB rules. Title insurance company offices are fielding all kinds of unusual questions as everyone works through their first few sets of documents. And our collective eyes are having difficulty adjusting to the appearance of title insurance rates on the new Closing Disclosure.

Under the filed rates of the title companies in South Carolina, we have a simultaneous issue rate of $100 for a second policy in a transaction. Typically, the owner’s liability amount and premium are higher, so the simultaneous issue rate of $100 is the charge for the loan policy.

The South Carolina Department of Insurance (SCDOI) requires us to disclose the true cost of an owner’s policy over the cost of the loan policy. We have been accustomed to referring to this charge as the “difference plus $100” because we take the difference in the full cost of both policies and add the $100 simultaneous issue fee to arrive at the number the SCDOI requires.

Let’s look at an example:

In a purchase transaction, the sales price is $455,000, and the loan amount is $409,500.  The full premium for the ALTA Homeowner’s policy is $1,290.60, and the full premium for the loan policy is $981.00. In the past, the title and software companies’ rate calculators would have shown:

ALTA Homeowner’s policy rate: $1,290.60 (full premium)
Loan Policy (standard rate): 100.00 (simultaneous issue fee)
$1390.60 (total)

For the SCDOI required disclosure, we would have shown:

ALTA Homeowner’s policy rate: $409.60 (difference plus $100)
Loan Policy (standard rate): 981.00 (full premium amount)
$1390.60 (total)

The total of the two calculations was always consistent.

Now, the CFPB requires that the total cost of the loan policy be disclosed and any simultaneous issue discounts must be shown against the owner’s policy. That’s ok with our South Carolina eyes because we can use our “difference plus $100” calculation to reach the same result.

The problem occurs where there is a reissue credit. While the CFPB never specifically addressed how to handle a reissue credit, the agency was clear that the loan policy premium had to be reflected in full. So most of the title and software companies have decided to take the reissue credit from the owner’s policy premium as well.

In our example, let’s assume that there was a prior ALTA Homeowner’s policy in the amount of $315,000. The reissue credit would be $468.90 (half the full premium for $315,000), so the new total cost would be $921.70 ($1,390.60 – $468.20), and this is where the problem becomes more challenging:

ALTA Homeowner’s policy rate: $ -59.30 ($409.60 minus the credit of $468.90)
Loan Policy (standard rate): 981.00 (simultaneous issue fee)
$921.70 (total)

The total is the same (and correct in our collective view), but notice the negative number as the cost of the owner’s policy.

We have decided in our office to think about it this way. The Closing Disclosure is not a replacement for the HUD-1, and it is not a closing statement. It is simply what it is entitled, a closing disclosure that the CFPB requires for the consumer borrower.

We are going to have to prepare other documents (closing statements, disbursement analyses) that will allow us to properly disburse and to completely disclose each disbursement as required by the SCDOI, not to mention the South Carolina Supreme Court! And our eyes are just going to have to adjust to those negative numbers!

Thanks to Cris Garrick, the IT guru in our office who figured this out and convinced me it’s correct!

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.

New Penn Financial Announces Closing Portal

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October 3Lender announcements are coming at a fast and furious pace now that we are within days of TRID’s October 3 deadline. Blogging about all of the broadcasts seems to be less than beneficial since most of them are repetitive at this point and since many of the regional lenders making announcements at this late date don’t appear to do business in South Carolina.

A new announcement from New Penn Financial, however, seems noteworthy for two reasons:  (1) this lender advertises it has an office in Murrells Inlet; and (2) the announcement includes news of a new closing portal and “closing agent portal job aid”. You can read the announcement in its entirely here, and follow its link to the “job aid”.

The lender indicates it has implemented the use of SmartGFE and Closing.com to provide more accurate fees to borrowers, and encourages all settlement agents (closing attorneys in South Carolina) to register with Closing.com as soon as possible. The initial and final Closing Disclosures will be sent to settlement agents through the DocuTech Closing Collaboration Portal (ConformX) for review and approval. No advance set-up is required to use this portal.

Interestingly, New Penn indicates it will offer both an E-signature process and a “wet” signature process as delivery and signing methods for the Loan Estimate and the Initial Closing Disclosure.  The memo states the disclosures will be delivered in accordance with CFPB’s timing requirements and that the delivery methods will ensure proof of delivery.

As we have spoken to closing attorneys and real estate agents across South Carolina in preparation for the new rules, there has been much speculation about whether lenders will shorten the six-day requirement by using methods of proof of delivery as an alternative to mail. This indication of an E-signature process would guessingsuggest that it may be possible to shorten the six-day delivery requirement with this particular lender. If other lenders follow suit, real estate professionals will be delighted that the waiting period can be shortened, at least under certain some circumstances.

I’m just guessing here (along with the rest of you), but I anticipate that the last quarter of 2015 may prove to be an interesting transition to our new normal, but after the first of the year, those of us who decide to remain in the closing “game” will have settled into a different, but manageable routine. Best of luck to all of you for getting through the next few months!  And remember, we will get through this together!