12/17/2015

TRID Q&A: Who Handles Preparation and Delivery of Seller’s Closing Disclosure?

Question: We have been told by a couple of lenders that they would prepare a joint buyer and seller Closing Disclosure and deliver the same to both the buyer and seller for “signature.” Can the lender elect to take on the role of the settlement agent with regard to preparation and delivery of the Seller Closing Disclosure?

Answer: To comply with the TILA-RESPA Integrated Disclosures rule, both the buyer and seller must receive Closing Disclosures that provide details of the transaction. In sale transactions, the rule places the responsibility on the settlement agent to provide the seller with a Closing Disclosure relating to the seller’s transaction. See § 1026.19(f)(4). However, the rule also recognizes that in some instances the settlement agent may meet this obligation by either providing the seller with a seller-only Closing Disclosure or a combined buyer/seller Closing Disclosure. This can be done by either the lender or the settlement agent depending on the agreement between those parties. You should collaborate with your lender partners to determine who will prepare this document so you can ensure you meet your obligations under the Know Before You Owe regulation. 

Similar to lenders being liable for delivery and accuracy of the buyer’s Closing Disclosure, settlement agents are liable for delivery and accuracy of the seller’s Closing Disclosure. If a lender decides to provide the seller’s Closing Disclosure, the settlement agent must be aware of this process and ensure accuracy.

Fee Names on Loan Estimate and Closing Disclosure Must Match

In addition to preparing for new timing requirements and tighter fee tolerances, settlement agents and lenders must develop standardized fee names or descriptions for the Loan Estimate and Closing Disclosure.

Because the Consumer Financial Protection Bureau wants consumers to be able to compare fee estimates with what’s actually charged at consummation, the TILA-RESPA Integrated Disclosures (TRID) rule requires fee terminology to be consistent between the two forms. This is a challenge because fees for services are not called the same thing across the country. Lenders and settlement agents need to communicate and come to an agreement on standardized fee names for the Loan Estimate and Closing Disclosure.

Examples of variances in naming include valuation services versus appraisal. Some states require a specific terminology for fees. As an example in Texas, the fee for termites must be called "wood destroying insect fee."

 Here’s the portion of the TRID rule addressing fee naming:

  1. Consistent terminology and order of charges. On the Closing Disclosure the creditor must label the corresponding services and costs disclosed under § 1026.38(f) and (g) using terminology that describes each item, as applicable, and must use terminology or the prescribed label, as applicable, that is consistent with that used on the Loan Estimate to identify each corresponding item. In addition, § 1026.38(h)(4) requires the creditor to list the items disclosed under each subcategory of charges in a consistent order. If costs move between subheadings under § 1026.38(f)(2) and (f)(3), listing the costs in alphabetical order in each subheading category is considered to be in compliance with § 1026.38(h)(4). See comment 37(f)(5)-1 for guidance regarding the requirement to use terminology that describes the items to be disclosed.

Lenders and settlement agents have started attempting to determine standard fee names. Below is one lender’s example of what it uses for title fees on the disclosures:

  1. Title - Closing/Settlement Fee
  2. Title - Lender’s Title Insurance
  3. Title – Title Exam/Search Fee
  4. Title – Deed Preparation
  5. Title – Closing Protection Letter
  6. Title – Courier/Wire
  7. Title – Tax Report
  8. Title – Doc/Processing Fee

 

PAGE 2 of LOAN ESTIMATE              

                 LE_2


PAGE 2 of CLOSING DISCLOSURE                                  

CD_2

12/09/2015

Requirements for Delivery of the Closing Disclosure

For loans that require a Loan Estimate, which include most closed-end mortgage loans secured by real property) and that proceed to closing, creditors must provide a new Closing Disclosure reflecting the actual terms of the transaction.

The creditor is required to provide the consumer Closing Disclosure at least three business days before consummation. The CFPB says that “business day” for purposes of the Closing Disclosure is the rescission-based business day definition, and means all calendar days except Sundays and legal public holidays.

According to the CFPB, creditors may estimate fees using the best information reasonably available when the actual cost is not available at the time the Closing Disclosure must be delivered.

“However, creditors must act in good faith and use due diligence in obtaining the information,” the CFPB states in its examination procedure manual. “The creditor normally may rely on the representations of other parties in obtaining the information, including, for example, the settlement agent.”

A corrected Closing Disclosure containing the actual terms of the transaction must be provided at or before consummation. If the creditor provides a corrected disclosure, it must provide the consumer with an additional three-business-day waiting period prior to consummation if:

  • the annual percentage rate changes 1/8 of a percent
  • the loan product changes
  • a prepayment penalty is added to the transaction

The creditor is responsible for ensuring that the Closing Disclosure meets the content, delivery and timing requirements. If the Closing Disclosure is provided in person, it is considered received by the consumer on the day it is provided. If it is mailed or delivered electronically, the consumer is considered to have received the Closing Disclosure three business days after it is delivered or placed in the mail.

If the creditor mails the disclosure six business days prior to consummation, it can assume that it was received three business days after sending, and therefore three business days prior to consummation, according to the CFPB. Creditors may contract with settlement agents to provide the Closing Disclosure to consumers, provided the settlement agent complies with all relevant requirements.

The rule does not indicate that any specific proof is needed to show the Closing Disclosure was placed in the mail. Similar to contract law, if the sender places the Closing Disclosure in the mail, has it addressed to the consumer properly and has proper postage, it is assumed to be received by the consumer three business days later. The sender could always mail the Closing Disclosure certified or require a signature upon receipt if they wanted to have proof it was delivered properly, but that is not required by the rule. This highlights the importance of having documented policies and procedures. Title production systems should be able to create records of when the Closing Disclosure was generated. Having policies showing when a company places documents in the mail can go a long way to showing a strong pattern of compliance. Also, some postal services allow customers to generate postage (instead of stamps) and create a log of each envelope that is post marked.

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.

Creditors and settlement agents also may agree to divide responsibility with regard to completing the Closing Disclosure, with the settlement agent assuming responsibility to complete some or all the Closing Disclosure. In these situations, the creditor must maintain communication with the settlement agent to ensure that the Closing Disclosure and its delivery satisfy regulatory requirements, The creditor is legally responsible for any errors or defects.

In transactions involving a seller, the settlement agent is required to provide the seller with the Closing Disclosure reflecting the actual terms of the seller’s transaction no later than the day of consummation.  

Multiple consumers

In transactions that are not rescindable, the Closing Disclosure may be provided to any consumer with primary liability on the obligation. In rescindable transactions, the creditor must provide the Closing Disclosure separately and meet the timing requirements for each consumer who has the right to rescind under TILA.

The consumer may waive the three-day period if there is a bona fide personal financial emergency. Bona-fide personal financial emergencies are extremely rare. Determining whether one exists is fact intensive. The only example provided by the Bureau is the imminent sale of the consumers home through foreclosure where the proceeds of the new mortgage can save the home from foreclosure.

12/02/2015

TRID Q&A: Can Realtor Receive Buyer's Closing Disclosure?

Question: Is it a violation for the buyer’s Realtor to be in the closing room while the buyer is reviewing and signing their Closing Disclosure and loan documents? Is the buyer’s Realtor permitted to receive a copy of the Closing Disclosure without written consent by the buyer?

Answer: The TILA-RESPA Integrated Disclosure (TRID) rule did not change anything regarding privacy. Companies should review their privacy policies to ensure it matches with their data sharing practices. Closing agents are encouraged to consider the role closing data plays in the Multiple Listing Service (MLS) system or agent licensing when assessing how to share data. One of the primary reasons real estate agents are interested in receiving the Closing Disclosure is because they have to report certain data fields to MLS to close the listing. These requirements vary by state, so there is not a uniform set of data fields that will satisfy MLS. Reporting these data fields is a requirement for participating in the MLS system, so the information is needed by the real estate agent. However, not all information on the Closing Disclosure is necessary for real estate agents to comply with MLS requirements, which is why ALTA encourages closing agents to consider what information they provide to real estate agents and what the best method of sharing that information would be.

This being said, there is nothing within the TRID rule that prohibits the buyer’s Realtor from being present while the buyer reviews and signs his or her Closing Disclosure and loan documents. Additionally, the rule does not specifically address who may or may not receive the disclosures. Most lenders, however, will not provide the disclosures to the Realtor even if the Realtor obtains permission from the buyer. If the Realtor would like a copy of the disclosures, he or she can obtain a copy of them directly from the buyer.

The concern with sharing consumer’s personal and financial information is one of the reasons behind ALTA’s development of the ALTA Settlement Statements. The ALTA Settlement Statements may be used in addition to the Closing Disclosure, but should not be used instead of the Closing Disclosure. The ALTA Settlement Statements help title insurance and settlement companies itemize all the fees and charges that both the homebuyer and seller must pay during the settlement process of a housing transaction. There are four versions of the ALTA Settlement Statement are available, the buyer statement, the seller statement, the combined statement, and a statement for cash transactions. Click here to download the ALTA Settlement Statements.

11/24/2015

TRID Q&A: Should Basic or Enhanced Rate be Quoted for Owner’s Policy?

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.

How to Comply with the Closing Disclosure's Three-day Rule

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:

  • changes to the APR above 1/8 of a percent for most loans (and 1/4 of a percent for loans with irregular payments or periods)
  • changes the loan product
  • addition of a prepayment penalty to the loan

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.

Three-day chart

11/19/2015

TRID Q&A: How to Handle Earnest Money at Closing

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 tridhelp@alta.org. ALTA will address common questions/issues here on its blog.

11/17/2015

How to Use ALTA’s Homebuyer Guide: PowerPoint Presentations

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 PowerPoint presentations to help in the marketing and sales process with homebuyers. The notes section of each PowerPoint includes additional education tips and content to help with your presentation.

The Homebuyer Checklist: 10 Steps to Buy Your Home with Confidence (below)

  • Objective: This presentation and accompanying script helps homebuyers better understand the home-buying process.

  • When to Use: Real estate agents and title professionals should deliver this presentation to prospective homebuyers at the beginning of the home buying process.

360-ALTA_Presentation_The Homebuyer Checklist_8.20.15

Why Every Homebuyer Needs Owner’s Title Insurance (below)

  • Objective: This presentation and accompanying script is for title agents to educate homebuyers on the importance of owner’s title insurance when purchasing a home.

  • When to Use: Title agents can present this information live upon first meeting with homebuyers, or include it in their introductory letters to homebuyers

 Why_Every_Homebuyer_Needs_Title_Insurance

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 membership@alta.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 jyohe@alta.org

Closing Efficiency Drives Consumer Satisfaction, Study Finds

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.

JDPower satisfaction snapshot

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:

  • loan offerings
  • application/approval process
  • interaction
  • closing
  • onboarding
  • problem resolution

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:

  • Communication Impacts Satisfaction: Communication throughout the loan process mitigates dissatisfaction with a longer timeline. When the loan process takes more than two months, satisfaction is 686. However, when an accurate time frame estimate and proactive updates are provided in that same scenario, satisfaction is 859.
  • Millennials Seek Guidance: With Millennials now accounting for the largest share of loan originations over the last two years (according to the National Association of Realtors), it is notable that nearly 4 in 10 (37%) millennial customers indicate that the origination process was not completely explained to them, and 58% indicate their options, terms and fees were not completely explained.
  • Effective Loan Representatives are Vital: Those loan reps who engage customers, build trust and ensure that borrowers understand each step of the process can mitigate the negative impact on satisfaction due to missing closing dates (764 missed date/effective representative vs. 511 missed date/ineffective representative).
  • Loans are Closing Sooner: The percentage of applications and approvals that close earlier than promised has increased to 35% in 2015 from 31% in 2014.
  • Satisfying Experience Leads to Recommendations and Loyalty: Providing an outstanding mortgage origination experience can generate high levels of advocacy and retention. The study finds that 71% of highly satisfied customers (overall satisfaction scores of 900 or higher) say they “definitely will” recommend their lender, and 76% say they “definitely will” consider reusing the same lender for their next home purchase. In comparison, only 5% of dissatisfied customers (scores of 699 or less) say they “definitely will” recommend and 8% say they “definitely will” consider reusing the lender.

Company Rankings

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.

JDPower 2015 Survey

GSE Conforming Loan Limit Expected to Increase 3 Percent in 2016

Measuring inflation

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.