The Consumer Financial Protection Bureau (CFPB) held a webinar April 12 to address frequently asked questions about the TILA-RESPA Integrated Disclosures (TRID) rule. One of the questions addressed was how to show flood insurance premiums on the Loan Estimate and Closing Disclosure.
The CFPB staff stated that the term “homeowner’s insurance” as used under the rule includes flood insurance. Specifically, the CFPB staff stated that “homeowner’s insurance” under the rule means, “the amounts identified in § 1026.4(b)(8), which include premiums for insurance against losses or damage to property written in connection with the credit transaction.
As such, flood insurance is treated under the rule, and more generally under Regulation Z, as other casualty insurance, such as homeowner’s insurance.” CFPB straff noted that flood insurance may be disclosed on the forms under the Estimated Taxes, Insurance and Assessments in the Projected Payments table in the Homeowner’s Insurance line. Tthe box for Homeowner’s Insurance would be checked, and Yes or No would be indicted to state whether it is escrowed, according to the webinar. In addition, in the Projected Payments table, the Escrow amount would include any amount escrowed for flood insurance.
Under the Prepaids section in Other Costs, if there is any amount that is prepaid for flood insurance, it would be disclosed on the Homeowner’s Insurance line Section F along with any other prepaid amount for the homeowner’s insurance premium. Under the Escrow section in Other Costs, if any flood insurance premiums are in escrow, they would be disclosed on the line for Homeowner’s Insurance in Section G.
According to Richard Horn of Richard Horn Legal PLLC, the CFPB noted that the flood insurance payments would be reflected in the Escrow tables on page four of the Closing Disclosure, “but they did not explicitly state how it would be referred to (i.e., as Homeowner’s Insurance or Flood Insurance).”
“In addition, this answer does not address how to disclose the payee and the term in the Prepaids section or the amount of months collected in the Escrows section for Flood Insurance if this information is different from the hazard insurance policy,” Horn added.
During a webinar on April 12, the Consumer Financial Protection Bureau addressed several questions regarding the TILA-RESPA Integrated Disclosures (TRID) rule that stakeholders have submitted in recent weeks, including the disclosure of fees for owner’s title insurance.
The CFPB specifically addressed this question submitted by ALTA during the webinar:
The calculation of the owner’s title policy premium (in a purchase transaction when owner’s and lender’s policies are issued simultaneously) in accordance with the rule might result in a negative number. Does the creditor disclose this negative number for the owner’s title policy on the Loan Estimate and Closing Disclosure?
Dania Ayoubi, counsel in the CFPB’s Office of Regulations, said that in this situation, the creditor would disclose the premium for the owner’s policy as a negative number.
“When a simultaneous issue rate or discount is used—mostly in purchase transactions—the cost of an owner’s title insurance policy is disclosed as the incremental cost of that owner’s title insurance beyond the standard non-discounted cost of the lender’s title insurance policy,” Ayoubi said. “When disclosed in this fashion, the disclosure conveys to the consumer that it is less expensive to purchase both owner’s title insurance and lenders title insurance together than it is to purchase just lenders policy by itself.”
She referenced Comment 37(g)(4)-2 of the rule, which states “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:
Ayoubi said the CFPB previously addressed how these premiums should be calculated and disclosed in the May 2015 webinar. She added that there are no provisions in Regulation Z that would prohibit the cost of owner’s title insurance from being disclosed as a negative number.
ALTA issued a release last week reminding the CFPB that the way the rule requires the disclosure of premiums for an owner’s policy is not “transparent,” “practical” or “accurate” as the bureau believes and is inconsistent with the Bureau’s mission to better inform consumers.
Other topics covered included:
Others participating on the webinar from CFPB’s Office of Regulations included Seth Caffrey, counsel; Kristin Switzer, regulatory implementation analyst; Alexa Reimelt, counsel; and Chelsea Peter, counsel.
CFPB staff reminded listeners that the webinar is not a substitute for the rule. Only the rule, including its amendments and official commentary, can provide complete and definitive information regarding the Rule’s requirements, according to the CFPB.
As a general rule, the CFPB presenters indicated that when determining how to comply with the rule, one should first search the rule to see if it specifies how to comply. Absent any specific guidance, one can disclose as he or she thinks is appropriate, as long as that method of disclosing is not prohibited by the rule. The main takeaway was that there are oftentimes several ways of disclosing a fee, any one of which may be acceptable under the rule. This approach reiterates ALTA's message that members need to communicate with their lender partners to determine how fees will be disclosed.
Offering thoughts on why title professionals should attend ALTA's 2016 Business Strategies Conference are David Townsend NTP, CEO of Agents National Title Insurance Co.; Cynthia Blair NTP, shareholder of Blair Cato Pickren Casterline LLC; Dan Mennenoh, president of H.B. Wilkinson Title Co.; and Diane Evans NTP, vice president of Land Title Guarantee.
There are plenty of cool things to do in Indy!
A title agent’s diligence in Washington successfully prevented a fraudulent email request for the company to send a wire transfer.
Maureen Pfaff, general manager and chief financial officer for Olympic Peninsula Title Co., recently received a random email requesting the company wire nearly $11,000 to a TD Bank in Florida.
Pfaff said she knew immediately the email was fraudulent because the message came from her father, who wouldn’t make a request like this via email.
“Additionally, the formality of the email and signing it the way they did was a dead giveaway,” Pfaff said.
Realizing it was a scam, Pfaff strung the criminal along, eventually sending something encrypted so she could get an IP address to include in the complaint filed with the FBI. Pfaff created a fake wire transfer notification in an encrypted email, which generated a report when opened.
Pfaff said this was the third fraud attempt the company has experienced in the past six months.
“They’ve all been different strategies,” she added.
Title professionals who receive these types of emails should report the incident to the FBI’s Internet Crime Complaint Center, which is used to track trends in criminal activity.
Below are some of the emails between Pfaff and the fraudster (click to enlarge the image):
Criminals use various tricks to obtain information and money. Here are several other schemes title professionals should be aware of that are being used by criminals:
Identity theft victims can now go online and get a free, personalized identity theft recovery plan as a result of significant enhancements to the Federal Trade Commission’s IdentityTheft.gov website.
The new website is integrated with the FTC’s consumer complaint system, allowing consumers who are victims of identity theft to file a complaint with the FTC and then get a personalized guide to recovery that helps streamline many of the steps involved.
In addition to IdentityTheft.gov and the new personal recovery plan features, the FTC also provides educational materials for businesses with information on how to prevent identity theft and remain vigilant for other scams.
In 2015, the FTC received over 490,000 consumer complaints about identity theft, representing a 47 percent increase over the prior year, and the Department of Justice estimates that 17.6 million Americans were victims of identity theft in 2014.
What can businesses do to help?
The third pillar of ALTA’s Title Insurance and Settlement Company Best Practices addresses policies and procedures for an appropriate information security program.
To learn more, register for ALTA’s Feb. 11 compliance webinar “Protecting Sensitive Customer Information: The Basics of Gramm-Leach-Bliley,” The Gramm-Leach-Bliley Act provides the basic legal framework governing title and settlement companies’ duty to protect their customers’ non-public personal information (NPI).
Several executives from Stewart Information Services including Matt Morris, chief executive officer, rang the opening bell on Jan. 29 for the New York Stock Exchange.
“We are honored to have had the opportunity to ring the iconic opening bell,” Morris said. “It was a great occasion for us to kick off 2016. This will be a year of continued momentum and growth, as well as a year of transformation with our recent governance changes. We will center our business on our customers and real estate partners to drive trusted real estate services delivered by our amazing associates who make it possible.”
Joining Morris on the podium were Thomas Apel, Stewart’s chairman of the board; Allen Berryman, chief financial officer; John Killea, chief legal officer; Ted C. Jones, chief economist; Nat Otis, director of investor relations; and Jennie Craig, vice president marketing programs and media relations.
Morris opened trading with the ringing of the bell at the 4:25 mark of the following video:
Having trouble viewing this? Go to alta.org for a better viewing experience.
The Financial Crimes Enforcement Network (FinCEN) has issued Geographic Targeting Orders requiring several title insurance underwriters to identify the names of individuals involved in shell companies and other legal entities that make all-cash purchases for high-end residential real estate in Manhattan, N.Y., and Miami-Dade County, Fla.
FinCEN is concerned that all-cash transactions in these areas are being used by individuals to hide their assets and identity by purchasing residential properties through limited liability companies or other opaque structures. To help mitigate this potential money-laundering vulnerability, FinCEN will require certain underwriters to identify and report the true “beneficial owner” behind a legal entity involved in certain high-end deals in these two areas. The reporting requirement also pertains to the underwriters’ subsidiaries and agents.
NPR interviewed ALTA CEO Michelle Korsmo about the order. Below is audio of NPR's article, which includes a portion of the interview with Korsmo. She can be heard at the 2:17 mark.
Transaction Requirements to File Report with FinCEN
Any underwriters that received the order must file a currency transaction report with FinCEN if these things occur:
The report must include:
If the purchase involved in the covered transaction is a limited liability company, the underwriter must provide the name, address and taxpayer identification number of all its members.
Additionally, covered title companies must retain all records relating to compliance with the order for five years, store the records so they are accessible with a reasonable period of time and make the data available to FinCEN or other law enforcement or regulatory agency, upon request.
The term of this order expires in 180 days, but FinCEN may indefinitely renew the order for another six months and for additional areas.
FinCEN said title insurance companies play a central role in real estate transactions and can provide valuable information about potential illegal activities.
“FinCEN appreciates the assistance and cooperation of the title insurance companies and the American Land Title Association in protecting the real estate markets from abuse by illicit actors,” FinCEN said in a release.
ALTA is actively assisting our members to comply with these reporting requirements. Korsmo said "ALTA looks forward to continuing its work with FinCEN as members implement the order to help prevent money laundering schemes and the illegal purchase of real estate in the United States. As the independent third-party at the closing table, ALTA members work to safeguard the real estate transaction for millions of Americans every year. Our work with FinCEN underscores ALTA members’ commitment to providing a compliant real estate settlement experience.”
ALTA has already submitted a letter to FinCEN’s director asking for several clarifications to promote consistency in reporting and help the industry better understand which transactions are covered by the order.
ALTA Seeks Clarification of Orders from FinCEN
ALTA proposes FinCEN adopt RESPA’s definition for “residential.” Industry familiarity with definitions and regulatory scheme provided by RESPA will help title companies identify transactions covered by the order.
ALTA recommends that the definition of “Legal Entity” exclude trusts. The order defines the term “Legal Entity” as a corporation, limited liability company, partnership or other similar business entity.” According to the letter, ALTA said that unlike a corporation, a trust is not considered a separate legal entity under the common law of various states. Adopting this recommendation will provide a definition consistent with those used by the industry for purposes of determining how to effectively transfer title.
ALTA also suggests that the definition of “agents” refer only to people or entities with a contractual relationship with the covered title company. State insurance laws require insurers to appoint agents via a specific written contract or authorization. This will help the insurers consistently determine which business partners they must educate and supervise to comply with the order.
“We urge FinCEN to use a reasonable and good-faith test for determining insurers’ compliance with this order,” ALTA wrote in its letter. “We believe the clarifications requested and joint education with the insurer and FinCEN, should ensure that all covered transactions that the insurer is aware of will be reported; however, even with the best efforts of title insurers, there may be transactions of which the insurer is not made aware.”
To aid compliance, title professionals are encouraged to have a better understanding of the types of customers they do business with. Real estate agents and attorneys should be resources to help gather information about corporate entities purchasing real estate.
The Federal Trade Commission (FTC) recently issued a consent order against Henry Schein Practice Solutions, Inc. (Schein), a software provider for dental practices, for allegedly marketing its software using deceptive assertions. The FTC fined Schein $250,000 for alleged false marketing advertisements related to the level of encryption the company provided to protect patient health data.
Schein advertised that its software provided industry-standard encryption methods to protect sensitive patient information as required by the Health Insurance Portability and Accountability Act (HIPPA). However, the FTC alleged that Schein was aware that its software did not comport to the Advanced Encryption Standard, which the National Institute of Standards and Technology (NIST) recognizes as the industry standard that meets the regulatory data encryption obligations under HIPPA. By failing to meet the encryption standards identified by the NIST, Schein was found to have misled patients about the level of protection its software provided.
The significant fine the FTC assessed for Schein’s deceptive marketing correlates with the type of data Schein was encrypting. “Strong encryption is critical for companies dealing with sensitive health information,” said Jessica Rich, director of the FTC’s Bureau of Consumer Protection. “If a company promises strong encryption, it should deliver it.”
The primary lesson that title insurance and settlement companies should take from this consent order is the importance of clearly and accurately identifying encryption methods. When marketing software qualifications or security, it is better to be specific about what the software is capable of doing instead of using puffery or broad statements. Implying that the services meet certain regulatory standards may be seen as deceptive, as Schein’s advertising was found by the FTC in this case.
Question: How do we address issues that come up during a walkthrough? For example, if the water heater is leaking and the parties want to escrow $1,000 for it to be repaired. Does the Closing Disclosure have to be revised and does the lender need to redisclose?
Answer: Prior to the consummation or closing, the Closing Disclosure should be updated with the best information reasonably available to the lender. If any issues arise from a walkthrough that require a monetary adjustment, the Closing Disclosure should be updated to reflect this adjustment prior to closing.
Although the walkthrough may necessitate a revised copy of the Closing Disclosure, the changes may not necessitate an additional three-day waiting period between delivery of the Closing Disclosure and closing. There are only three circumstances (§ 1026.19(f)(ii)) that trigger a new three-day waiting period:
This is why it is important to work with real estate partners to ensure those adjustments are sent to the lender and settlement agent as soon as possible after they come to light. While the change may not trigger a new three-day period, lenders may require a few hours to approve the change, determine its impact on the APR and update the disclosures.