Question: Does the TILA-RESPA Integrated (TRID) rule require that the lender disclose the basic rate for owner’s title insurance (as opposed to quoting the enhanced rate)?
Answer: As a general rule, you should disclose the basic rate for owner’s title insurance. In the Know Before You Owe rule’s Official Interpretation to § 1026.36(g)(4), it states, “The amount disclosed for an owner's title insurance premium pursuant to § 1026.37(g)(4) is based on a basic owner's policy rate, and not on an ‘enhanced’ title insurance policy premium.” However, “the creditor may instead disclose the premium for an ‘enhanced’ policy when the ‘enhanced’ title insurance policy is required by the real estate sales contract, if such requirement is known to the creditor when issuing the Loan Estimate.” Official Interpretation 37(g)(4)-1. The enhanced rate “should be disclosed as ‘Title—Owner's Title Policy (optional),’ or in any similar manner that includes the introductory description ‘Title - ’ at the beginning of the label for the item, the parenthetical description ‘(optional)’ at the end of the label, and clearly indicates the amount of the premium disclosed pursuant to § 1026.37(g)(4) is for the owner's title insurance coverage.” .” Official Interpretation 37(g)(4)-1.
Given the new definition of “application,” it is unlikely that the lender will have a copy of the sales contract available at the time the Loan Estimate is produced. Therefore, it is likely in most cases that lenders will need to disclose the cost of a basic owner’s policy. If the buyer later elects to purchase an enhanced policy rather than the basic policy, the lender can update the Loan Estimate and reset tolerances because the decision to purchase the enhanced policy would be a consumer requested change. See § 1026.19(e)(3)(iv)(C) and its accompanying Official Interpretation.
This aspect of the rule illustrates why it is so important for title agents to market directly to the consumer. The more consumers understand the value of owner’s title insurance and how it protects their property rights, the easier it will be to get them to purchase enhanced coverage. The tools in our new Homebuyer Guide are designed to help agents better connect with buyers and sell the value of an owner’s policy. You can find these tools at www.alta.org/homebuyer.
According to the Consumer Financial Protection Bureau’s final rule, the creditor must deliver the Closing Disclosure to the consumer at least three business days prior to the date of consummation of the transaction. (Note that the Closing Disclosure and Loan Estimate must be implemented by Oct. 3, 2015, on certain loans.
In the final rule, the CFPB said creditors may use settlement agents to provide the Closing Disclosure, provided that the settlement agents comply with the final rule’s requirements for the Closing Disclosure.
As an example, if settlement is scheduled for Thursday then the Closing Disclosure can be hand delivered on Monday. A company could also deliver the disclosure by courier or other shipping or postal service so long as a signature is obtained from the borrower showing receipt on Monday. If a company does not use a service that provides evidence that the disclosure was received on Monday (ie: U.S. Postal Service first class mail), then it must send the disclosure by the prior Thursday. Use the chart below to help you determine when the Closing Disclosure should be sent to ensure the buyer receives it three days prior to consummation of the transaction.
Generally, if changes occur between the time the Closing Disclosure form is given and the closing, the consumer must be provided a new form. When that happens, the consumer must be given three additional business days to review that form before closing.
The CFPB listened to ALTA concerns and limited the instances that would require a new Closing Disclosure to be issued. Limiting the instances of delays in real estate transactions will help to ensure a positive experience for the consumer at the closing table.
Changes that require creditors to provide a new Closing Disclosure and an additional three-business-day waiting period after receipt include:
Some quick definitions can be helpful when understanding this rule. First, the starting point for determining when the three-day period starts is the day of consummation. Consummation is the day the consumer becomes contractually obligated on the loan (i.e., the day they sign the note). This is typically the same day as closing (12 C.F.R. §§ 1026.2(a)(13) & 1026.38(a)(3)(ii)). Once you have the right starting point then you need to count backwards. The three-day rule requires the counting of “business days,” which are “all calendar days except Sundays and the legal public holidays specified in 5 U.S.C. 6103(a), such as New Year's Day, the Birthday of Martin Luther King, Jr., Washington's Birthday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans Day, Thanksgiving Day and Christmas Day.” It is not a 72-hour requirement, but rather a day requirement so you do not need to know the time that closing will take place.
Lastly, while the examples the CFPB provides in the rule all focus on physical delivery of the disclosure, electronic delivery is allowed in accordance with the E-SIGN or Uniform Electronic Transaction Act laws. The timing requirements are the same as for physical delivery and would require obtaining some evidence of receipt (i.e., an email confirmation, system log or other indicia) or complying with the mailbox rule for presuming receipt three days after placing the documents in the mail.
Question: It is my understanding that you may not deduct the earnest money from the real estate agent's commission any more at closing. The real estate agent must bring a check to closing for the earnest money – is this correct?
Answer: There is no prohibition in the rule that prevents the deduction of the earnest money from the real estate agent’s commission. That being said, you must disclose the amount of the commission that is paid to the real estate agent, “regardless of the identity of the party holding any earnest money deposit.” Official Interpretation 38(g)(4)-4. To comply with this requirement, you should disclose the amount of the commission and the deposit/earnest money, along with the payee of these items, on the Closing Disclosure.
Have questions or issues about TRID that you need answered? Send an email to email@example.com. ALTA will address common questions/issues here on its blog.
ALTA created the Homebuyer Guide to help members easily communicate the benefit of owner’s title insurance. The Homebuyer Guide includes more than 60 marketing resources available for direct-to-consumer communication.
In this post, we focus on how you can use two different Power Point presentations to help in the marketing and sales process with homebuyers. The notes section of each Power Point includes additional education tips and content to help with your presentation.
The Homebuyer Checklist: 10 Steps to Buy Your Home with Confidence (below)
Why Every Homebuyer Needs Owner’s Title Insurance (below)
ALTA membership is required to access the materials in the Homebuyer Guide. ALTA Policy Forms license holders do not have access to the Homebuyer Guide materials. Click here to join or contact the Membership Department by email at firstname.lastname@example.org or 202-296-3671.
We'd like to hear how you are using resources in the Homebuyer Guide. Please share here in the comments or send an email to Jeremy Yohe at email@example.com
Mortgage customer satisfaction has increased this year as lenders have focused on developing functional digital channels and improving operational efficiency, according to J.D. Power’s 2015 U.S. Primary Mortgage Origination Satisfaction Study. Consumer satisfaction improves significantly when transactions close earlier than promised or when it was scheduled, the study found.
Despite the increase in satisfaction, mortgage lenders are under increased pressure from new loan disclosure regulations that could increase the time it takes to get a home loan while also facing increased competition from non-traditional lenders.
“While a lot of effort has been placed on ensuring compliance with new regulations, it is imperative that lenders improve their education and communication about the impact of these changes or risk losing customers,” said Craig Martin, director of the mortgage practice at J.D. Power. “Effective communication remains one of the most important aspects of a satisfying mortgage experience, especially if the process is taking longer than it has historically. As the number of Millennial home buyers continues to rise, lenders must be ready to meet their expectations. This generation is highly digitally connected, so ongoing communication and transparency via the channels they prefer, particularly mobile, are vital.”
The J.D. Power 2015 U.S. Primary Mortgage Origination Satisfaction Study examines customer satisfaction with the origination experience among the largest mortgage lenders in the United States. The study provides a broad understanding of how firms can improve mortgage customer satisfaction, loyalty, and advocacy across six key factors:
Satisfaction is calculated on a 1,000-point scale. Overall customer satisfaction with mortgage origination averages 793 in 2015, an increase of seven points from 2014. The increase in satisfaction is driven by a 22 point gain in the application and approval process factor, influenced by improved perceptions of the speed of the loan process. When loans close earlier than promised, satisfaction is significantly higher (866), compared to when loans close as expected (821) and when it takes longer than expected (658).
The study also finds that overall satisfaction with several mortgage application-related activities, such as completing an application (799), submitting documents (804) and receiving status updates (811) is markedly higher among customers who used digital communication channels versus those who communicated via mail and fax (753, 766, and 770, respectively).
The links between the perception of mortgage processing speed and efficiency and overall customer satisfaction are particularly noteworthy in light of new Know Before You Owe (TILA-RESPA Integrated Disclosures) regulation, which went into effect Oct. 3. This law has the potential to increase the mortgage timeline, according to J.D. Power, which poses a significant challenge for lenders when serving home buyers across all generations. This could be particularly challenging when dealing with Millennials (ages 18-34) who are technically savvy and connected to the Internet.
Here are some key findings in this year’s study:
Quicken Loans ranked highest in primary mortgage origination satisfaction for a sixth consecutive year, with a score of 850, an increase of 15 points from 2014. J.D. Power reported that Quicken Loans performs particularly well in all six factors. Fifth Third Mortgage ranks second with a score of 812, followed by Bank of America and BB&T (Branch Banking & Trust Co.) in a tie at 811 each.
The 2015 U.S. Primary Mortgage Origination Satisfaction Study is based on responses from 4,666 customers who originated a new mortgage or refinanced within the past 12 months. The study was fielded in two waves: February – March and July – August 2015.
By Mark Fleming
Since the financial crisis began, any conversation about housing policy has inevitably included a discussion of GSE reform. The Protecting American Taxpayers and Homeowners (PATH) Act, Johnson/Crapo reform bill and Administrative reform have all been discussed. Yet, one of the least discussed and most important features of the GSE relationship to the housing market is the conforming loan limit that restricts GSE lending based on the loan amount. The Federal Housing Finance Agency (FHFA) sets the loan limit for the upcoming year in late November. This year, the announcement is likely to be more important than in most recent years because it will likely be the first time in almost a decade that the conforming loan limit will be increased.
The Housing and Economic Recovery Act of 2008 (HERA) established the current formula for the calculation of loan limits to be administered by the FHFA. Under the HERA formula loan limits can only adjust upward with house price appreciation based on an index chosen by the FHFA. In other words, the GSE conforming loan limit can rise with house price inflation, but cannot fall in the event of any house price depreciation. This means that GSE market coverage effectively expands in times of stress (when prices are falling), and is inflation-adjusted in times of rising house prices.
Since 2008, FHFA has been using their standard FHFA purchase-only house price index that uses only GSE data. Keep in mind that the GSEs are only allowed to securitize loans at or below the conforming limit, so the data from the GSE’s doesn’t reflect all of the transactions in the market. Economists call this a sample selection bias. Earlier this year, the FHFA proposed changing the index they use to calculate the conforming loan limit to a broader “expanded-data” index that includes public record sale transactions, as well as GSE data in an effort to address sample selection bias. The industry overwhelming supported the proposed index switch. A better assessment of price changes can only unambiguously improve the important task of inflation-adjusting the GSEs’ allowable market coverage.
The conforming loan limit has been $417,000 since 2006 and, as prices fell dramatically in many markets throughout the country, has remained at this limit ever since. In the figure, one can see that the distinction of index is realistically much less important than the simple fact that house price inflation has been consistent since 2012. In fact, prices have recovered so much that, based on either of these indices, all that was lost has finally been regained this year. In other words, it is time to inflation-adjust the conforming loan limit upward.
Using the proposed “expanded-data” FHFA house price index, year-over-year appreciation from the third quarter of 2014 to the third quarter of this year of approximately 2 percent would have been sufficient to surpass the price level used to set the current loan limit of $417,000. We estimate that the index will likely report a 5.5 percent increase year-over-year in the third quarter. Based on the HERA mandated formula, the conforming loan limit will increase almost 3 percent to a new overall limit of $429,000.
While the debate continues about reducing the role and market share of the GSEs in the housing market, my expectation is that we will increase the market share of the GSE with an inflation-adjustment to the loan limit of almost 3 percent next year. Without the inflation-adjustment, over time the market share would decline without any further legislative action required. Has the housing market recovered? Having to adjust the FHFA loan limit for inflation is one very strong sign that it has.
To prove compliance with third-party oversight required by the Consumer Financial Protection Bureau (CFPB), several lenders have announced their requirements to prove implementation of ALTA’s “Title Insurance and Settlement Company Best Practices."
ALTA has compiled information it has received to help title and settlement agents understand the various lender expectations. If you are aware of other lender requirements regarding Best Practices, please share the information here on our blog. ALTA will update the list as it receives more information.
ALTA has developed several tools to help title professionals document Best Practice policies and procedures.
Several ALTA members have reported that lenders are unsure how to calculate the owner’s title insurance premium when issued simultaneously with a lender’s policy under the CFPB’s Know Before You Owe (TILA-RESPA Integrated Disclosures) rule.
The premium for an owner's title insurance policy for which a special rate may be available based on the simultaneous issuance of a lender's and an owner's policy is calculated and disclosed pursuant to § 1026.37(g)(4) as follows:
ALTA has pointed out that in the majority of states the cost of a homebuyer’s title insurance premiums will be inaccurate on the Closing Disclosure due to the CFPB’s mandatory calculation method when where the lender’s and owner’s title insurance policies are simultaneously issued. Many state regulators require settlement agents to disclose the actual costs for each fee the homebuyer is responsible for paying. ALTA developed model Settlement Statements to help settlement agents disclose the accurate costs to homebuyers.
The CFPB realizes that its calculation method will render inaccurate disclosures of the lender’s and owner’s title insurance premiums on the disclosure forms. However, the bureau feared that by disclosing the discounted rate of the lender’s policy and showing the owner’s policy at the full premium, consumers would not understand the incremental cost of purchasing an owner’s title insurance policy. Additionally, if the consumer opted not to purchase an owner’s title insurance policy, the cost of the lender’s policy would then increase substantially, resulting in a higher cost to close than anticipated by the lender and the consumer. However, despite the inaccurate disclosures of the individual costs of the premiums, the sum of the premiums under the rule’s mandated calculation will equal the sum actually charged to the consumer when the consumer pays for both the owner’s and lender’s title insurance policies.
The CFPB recognized that in situations in which the seller pays for the owner’s title insurance policy on behalf of the buyer, the Cash-to-Close figure on the Loan Estimate and Closing Disclosure will be inaccurate. In a seller-pay situation, the bureau indicated in a webinar that there are at least three ways in which the additional credit between the seller and the consumer may be disclosed on the Closing Disclosure:
It is important to note that this information does not represent legal interpretation, guidance or advice of the bureau, and should not be used as a substitute for the rule. Only the rule and its Official Interpretations can provide complete and definitive information regarding requirements.
Question: I have a question about recording fees on the CD. It is my understanding that recording fees are required to be “rolled up” so to speak in line E 01 since the only two items that the regulations allow to be itemized are for the deed and mortgage and that we are not permitted to add lines for other recording fees (for example the recording fee for a municipal lien certificate or a discharge of mortgage or an assignment of mortgage). So for example, in the CFPB sample CD for a purchase transaction, if there are other recording fees other than for the deed and mortgage, those fees must be added to the box where the figure $85 is represented in the sample form.
Answer: This is a precise understanding of the rule’s requirements on disclosing recording fees. Specifically, the rule requires that all recording fees and other government fees and taxes, outside of transfer taxes, must be added together and labeled “Recording Fees and Other Taxes” under the subheading “Taxes and Other Government Fees.” § 1026.37(g)(1)(i). The bureau clearly states within the Official Interpretations of the rule that no lines can be added or deleted under the “Taxes and Other Government Fees” subheading. Official Interpretation 37(g)(1)-6.
The bureau has also specifically stated that you cannot use an addendum to itemize fees that are required to be disclosed under the “Taxes and Other Government Fees” subheading. § 1026.37(g)(8). If you are required by state law, or simply would like, to make additional disclosures for recording fees or other government fees or taxes, you may disclose those fees in a separate document, such as the ALTA Settlement Statement.
Have questions or issues about TRID that you need answered? Send an email to firstname.lastname@example.org. ALTA will address common questions/issues here on its blog.
The short answer is that it depends on the lender. So, settlement agents should read their closing instructions carefully. Generally, when a disclosure becomes inaccurate within three days before consummation and a new three day period is not required, TRID requires the lender to correct the disclosure and ensure the consumers receives the disclosure at or before closing. 12 CFR 1026.19(f)(2)(i).
Each lender will have different requirements for how they will want to correct disclosures, the timing for sending them to consumers and the documentation they will require for compliance purposes.
It is a safe bet that if the lender requires some documentation of receipt for the original Closing Disclosure, they will likely require the same protocol for corrected disclosures.