ALTA: Your long home-buying journey is almost over. You found the home you love, the seller agreed to your offer and now it’s time for closing. Of course, there’s a lot to think about right now, and the last thing you want is something to go wrong. So make sure you work with an experienced closing agent to help ensure the details come together and everything runs smoothly.
As soon as the seller accepts your offer, the behind-the-scenes work begins. You can expect closing to happen within 30 to 90 days.
1. Select a Closing Agent
If you are working with a real estate agent, with your permission, he or she may place an order with a closing agent as soon as your sales contract is accepted. The closing agent can be a title company, an escrow company or a settlement company.
Most homebuyers rely on their real estate agent to select a closing agent—someone they work with regularly and know to be professional, reliable and efficient. However, you can choose your own closing agent if you wish. The closing agent will oversee the closing process and make sure everything happens in the right order and on time, without unnecessary delays or glitches.
2. Draw up an Escrow Agreement
First, a contract or escrow agreement is drafted, which the closing agent reviews for completeness and accuracy. The agent will also put your deposit into an escrow account, where the funds will remain until closing.
3. Title Search is Conducted
Once the title order is placed, the title company conducts a search of the public records. This should identify any issues with the title such as liens against the property, utility easements, and so on. If a problem is discovered, most often the title professional will take care of it without you even knowing about it. After the title search is complete, the title company can provide a title insurance policy.
4. Shop for Title Insurance
There are two kinds of title insurance coverage: a Lender’s policy, which covers the lender for the amount of the mortgage loan; and an Owner’s policy, which covers the homebuyer for the amount of the purchase price. If you are obtaining a loan, the bank or lender will typically require that you purchase a Lender’s policy. However, it only protects the lender.
It is always recommended that you obtain an Owner’s policy to protect your investment. The party that pays for the Owner’s policy varies from state to state, so ask your settlement agent for guidance before closing.
5. Obtain a Closing Disclosure
Your lender must provide a Closing Disclosure to you at least three days prior to closing. Your lender may also have a closing agent provide the Closing Disclosure to you three days before you close your transaction.
If you or your lender makes certain significant changes between the time the Closing Disclosure form is given to you and the closing, you must be provided a new form and an additional three-business-day waiting period after receipt of the new form. This applies if the creditor:
- Makes changes to the APR above ⅛ of a percent for most loans (and ¼ of a percent for loans with irregular payments or periods)
- Changes the loan product
- Adds a prepayment penalty to the loan
If the changes are less significant, they can be disclosed on a revised Closing Disclosure form provided to you at or before closing, without delaying the closing.
6. The Finish Line: Prepare for Closing
As closing day approaches, the closing agent orders any updated information that may be required. Once the closing agent confirms with the lender and the seller, he or she will set a final date, time and location of the closing.
On closing day, all of the behind-the-scenes work is complete. While you’ve been busy packing, ordering utilities and coordinating the movers, your closing agent has been managing the closing process so that you can rest assured, knowing all the paperwork is in order.
National Association of Realtors survey finds pros and cons for agents in the first year under the new mortgage transaction regime.
- One year after TRID’s implementation, the National Association of Realtors surveyed its members about their experiences with the regulation.
- Consumers have a better understanding of the homebuying process thanks to TRID, though real estate agents still struggle with the rule’s complexity, according to the poll.
- The main challenge from the regulation’s inception has been Realtors’ ability to access the Closing Disclosure.
This past Monday marked an important anniversary in the industry, and Inman’s Amy Swinderman says it’s doubtful that any real estate offices busted out the champagne to celebrate a controversial 1,800-page, sweeping reform of the mortgage transaction process that took effect on Oct. 3, 2015.
Amy goes on to say, nevertheless, the National Association of Realtors (NAR) polled about 55,000 Realtors about their post-TRID experiences, in honor of TRID’s first birthday.
It revealed that one year since the implementation of the Consumer Financial Protection Bureau’s (CFPB) TILA-RESPA Integrated Disclosure (TRID), or “Know Before You Owe,” rule, consumers have a better understanding of the homebuying process.
However, real estate agents still struggle to comply with the complex landmark regulation.
“Looking back at the first year of Know Before You Owe, we saw a solid mix of challenges and success,” said NAR President Tom Salomone in a statement. “Consumers now have a clearer picture of their mortgage when they buy a home, and that’s a good thing, but transaction delays and errors on the closing disclosure continue to frustrate our industry.
“Realtors report ongoing struggles getting access to the Closing Disclosure, making it harder for our members to advise their clients. The CFPB’s commitment to improve the rule is encouraging, and I’m hopeful that with time and some responsible fixes to the rule, the process will get smoother in the year ahead.”
TRID drives a wedge between lenders and Realtors
TRID has caused strife between lenders and Realtors, according to the survey’s respondents. Realtors said lending remains the main problem under TRID, and they pointed a finger at large, retail lenders specifically.
Almost half (43 percent) of the Realtors surveyed said they did not develop a TRID plan with their lender partners.
Another 41 percent said they at least enhanced their email, phone call, text and face-to-face communication with lenders.
Almost 35 percent of Realtors said they have been working exclusively with lenders that were ready to demonstrate their TRID expertise, and almost 5 percent of Realtors said they simply changed their “preferred” lenders to work with compliant partners.
“In my opinion, the TRID guidelines have reduced the communication between lenders and Realtors, and it feels like a push to keep us out of the process,” one survey respondent commented.
Trouble with the Closing Disclosure
The main challenge from the regulation’s inception has been Realtors’ ability to access the Closing Disclosure (CD).
TRID requires creditors to provide certain mortgage disclosures to the consumer, but lenders are concerned that sharing this sensitive personal information will violate privacy and information-sharing laws.
At NAR’s urging, the CFPB clarified this issue in late July, saying that it “understands that it is usual, accepted and appropriate for creditors and settlement agents to provide a Closing Disclosure to consumers, sellers and their real estate brokers or other agents.”
The Bureau said it will propose additional commentary to clarify how a creditor may provide separate disclosure forms to the consumer and the seller.
Despite that clarification, Realtors say many lenders are still reluctant to share the CD with third parties, citing legal requirements and consumer privacy as their rationale.
As a result, more Realtors have turned to title agents to provide the CD — although some title agents may be reluctant to jeopardize their lender relationships by doing so. Realtors with higher transaction volumes had better success at gaining access to the CD.
“It pays to have very strong LOCAL title and lending strategic partners, and be honest with buyer if they have decided to use a large lender or out-of-town title [company],” one respondent said. “Most every time when they decide to go this route, at the end of the transaction, they say they should have listened.”
Had more Realtors been able to gain access to the CD, they could have prevented or corrected errors before settlement, the survey concluded.
The share of Realtors reporting errors rose from 43 percent in the fourth quarter of 2015 to 50 percent in the third quarter of this year.
Realtors said the most common errors are missing seller or buyer concessions; missing agent concessions; incorrect or missing homeowners’ association dues; and mistakes with clients’ names, addresses or other identification information.
They also cited incorrect taxes, commissions, escrows and proration of bills as common problems that could have been avoided had they been able to review the CD before closing.
“How can us real estate agents protect our clients when we have the ability to see the Closing Disclosure taken away?” one respondent commented.
Impact on Realtors
Realtors have had to make other significant adjustments since TRID’s passage, most of which have to do with meeting disclosure deadlines.
Realtors reported adjusting purchase agreements; sharing contracts and amendments sooner with lenders, title insurers and closing agents; and performing inspections earlier, all to meet deadlines.
In making those adjustments, Realtors have nearly doubled the time and effort they spend per transaction, with Realtors working about 43 hours per transaction in Q3 2015, and now 80 hours per transaction in the same quarter of this year.
Direct expenditures on items like marketing, salaries, postage and notary fees have also increased by about $154 per transaction since the same quarter last year.
Although lenders and settlement agents are still finding they must delay or cancel closings due to issues in their processes (such as an error not related to an appraisal, title policy or inspection), delays are actually down year-over-year, with about 10.4 percent reporting delays in Q3 2015, and 8.5 percent reporting delays in the last three months.
However, cancellations are up slightly, with 0.6 percent reporting cancellations in Q3 last year, and 0.7 percent reporting cancellations in the last three months.
All in all, nearly 62 percent of Realtors rated the new settlement process as more difficult. Only about 12 percent of respondents said the process has improved under TRID.
“I worked 23 years building strong relationships, and this new TRID experience has removed me from a lot of the process, making me feel my relationships are suffering as a result,” said one respondent. “The real estate industry, on the whole, is suffering from external influences, and the client is ultimately the one who loses that great service.”
Impact on consumers
Speaking of clients, although TRID was intended to make the home-purchasing process easier and simpler for buyers, the survey noted that consumers have still been impacted by the regulation in various ways.
Realtors reported that clients had increased expenses due to rental or mortgage extensions, lost vacation time or income from taking time off, incurred additional storage fees or lost deposits and moving expenses.
In the last three months, delays cost consumers an average of $410, and cancellations cost them about $226, according to the survey.
Is the CFPB hearing about these experiences firsthand? Only 3 percent of respondents said they had clients who provided comments to the CFPB and on the lending process, although about 49 percent of respondents said they did not know if their clients had done so.
via Inman’s Amy Swinderman
How does rulemaking usually work?
In a typical U.S. federal rulemaking, an agency publishes its proposed regulation in the Federal Register and seeks public comment. Depending on the complexity of the rule, comment periods can last from 30 to 180 days.
Agencies then publish full responses to issues raised in the public comments and may publish a second draft proposed rule in the Federal Register if the new draft differs greatly from the original draft and raises new issues that may require further public comment.
If no further steps are taken by the public or interested parties, the proposed rule is codified into the Code of Federal Regulations.
What was the first “draft” of TRID and what did it look like?
On July 9, 2012, the CFPB issued a “Notice of Proposed Rulemaking” and request for public comment.
The 1,099-page document outlined the CFPB’s reasoning in designing the Loan Estimate and Closing Disclosure forms and provided samples of the forms for different types of loan products and explanations of how they should be filled out and used.
How long did the public have to comment, and how many comments were received?
The CFPB gave the public about five months — until Nov. 6, 2012 — to submit comments. Between the public comment period and other information for the record, the CFPB reviewed nearly 3,000 comments.
How did TRID change after the initial comments?
The bureau validated its testing of the new disclosure forms by conducting a quantitative study of the new forms, developed Spanish-language versions of the forms and developed and tested different versions of the disclosures for refinance loans.
When was the final rule published?
On Nov. 20, 2013, the CFPB published the final, 1,888-page TRID rule and set an effective date of Aug. 1, 2015 for implementation of the regulation. This date was later changed to Oct. 3, 2015.
What were some of the industry’s concerns or common criticisms about the TRID rule prior to implementation?
The length of the actual rule
The rule’s preamble alone, which described 44 years of mortgage industry regulation and provided context for the proposed changes, ran nearly 1,400 pages. When printed, the rule weighed about 15 pounds.
Many companies — especially small businesses with fewer resources than large mortgage entities — complained about the difficult-to-digest text, especially in light of their efforts to adjust and comply with several other complex mortgage industry regulations that were released prior to TRID.
Many felt that the rule’s exhaustive text still didn’t contemplate how the new disclosure forms and procedures would would work in some real-world scenarios.
The CFPB acknowledged that it would be impossible to address every nuance in the mortgage transaction process, and the bureau pledged to collect some of the most frequently asked questions and issue more specific interpretations and guidance as needed.
In early 2015, many industry professionals began voicing concerns about whether their loan origination and management software providers would be able to make the necessary changes and updates to their systems to accommodate processing of the new forms.
Some providers weren’t expecting to deliver these updates until spring 2015, leaving only a few months for companies to learn how to use the new system, beta test it and work out any kinks.
Some companies that did receive their upgraded systems well ahead of the TRID implementation date reported that they were encountering bugs and errors.
And finally, many were worried about the logistical nightmare of operating two systems simultaneously, as any loan application taken before the implementation date, but not closed before then, would have to be processed using the older system and disclosure forms.
Digesting such a complex rule, training employees on how to comply with the new disclosure forms and processes and deploying software changes — all while operating “business as usual” — proved to be an expensive challenge for a lot of companies, particularly smaller companies that don’t have the hefty compliance resources and experts that large, national companies have.
The CFPB released the TRID rule at a time when the mortgage industry and its associated industries were already grappling with a slew of other regulations and regulatory changes, including:
- The Ability-to-Repay and Qualified Mortgage (ATR/QM) rule
- The Home Mortgage Disclosure Act (HMDA)
- The Home Ownership and Equity Protection Act (HOEPA)
Lender liability issues
Because the CFPB placed responsibility for TRID compliance on mortgage lenders, real estate agents, title and settlement professionals, escrow agents and other third parties were concerned about how this would affect their relationships with their lender partners.
Before the implementation date, some lenders began vetting their third-party providers for their ability to demonstrate that they could adhere to the lenders’ standards. Smaller companies worried that they would get pushed away in favor of larger companies with more compliance resources and transaction volume.
Some compliance experts even raised questions about whether lenders’ reaction and their “preferred provider” lists would eliminate or interfere with consumers’ right to choose their settlement service providers, resulting in RESPA violations.
Why did the CFPB change the original implementation date for TRID?
Not enough time to prepare
From early to mid-2015, the affected industries began to voice concerns that many providers would not be ready to process loan applications using the new forms and systems by the Aug. 1, 2015, implementation date.
Many companies said their loan origination software providers were either behind in developing the necessary software upgrades or struggling to work out technical glitches.
Small companies such as rural credit unions said they were struggling to find the time and resources to devote to preparing to comply with the complex rule.
The affected industries asked the CFPB to consider delaying TRID’s effective date, and some organizations even backed legislative efforts to push the date off.
What happened to those efforts?
They fizzled out in the 2015 legislative session, and the CFPB refused to budge, with Director Richard Cordray firmly stating on several occasions that the bureau gave everyone nearly two years to prepare for the changes.
When did the CFPB change its mind?
On June 24, 2015, the affected industries got their wish granted when the CFPB issued a proposal to push TRID’s effective date to Oct. 3, 2015.
Why did the CFPB delay implementation?
The bureau said its decision was intended to correct an “administrative error” that would have delayed the effective date by at least two weeks — but many were skeptical of that explanation and believed that persistent concerns about delayed loan origination software rollouts finally tied the CFPB’s hands.
The CFPB conceded that “moving the effective date may benefit both industry and consumers with a smoother transition to the new rules,” and “believes that scheduling the effective date on a Saturday may facilitate implementation by giving industry time over the weekend to launch new systems configurations and to test systems.”
Whatever the reason for the delayed effective date, the affected industries were grateful to have an additional two months to prepare for the changes.
After a several-year effort, TRID finally became the law of the land on Oct. 3, 2015, with all mortgage applications initiated on or after that date processed using the new forms.
How did the industries affected by TRID prepare for it?
What did the CFPB do to help industries prepare for TRID?
In consideration of the complexity of the TRID rule and the overhaul of a mortgage transaction process that had been in place for more than 30 years, the CFPB in its original rulemaking gave the affected industries about 21 months to read and digest the regulation, train their staffs and make adjustments to their loan processing software to accommodate the new forms.
The bureau also created a Web page containing educational and training resources for the affected industries, including sample forms and a Small Entity Compliance Guide.
It also held several webinar training sessions to discuss real-world applications of the forms and field frequently asked questions.
What did industry trade groups do to prepare for TRID?
Most industry trade groups held educational and training sessions of their own, sometimes working together across the different real estate, mortgage and settlement services segments.
The bulk of these efforts were led by the American Land Title Association (ALTA), the national trade association and voice of the abstract and title insurance industry.
How has TRID changed the way mortgage transactions are conducted?
What specifics has TRID changed about the process?
TRID requires lenders to use the new disclosure forms, sets forth deadlines for when the forms must be given to the consumer and limits by how much the final deal can deviate from the original loan estimate.
What is the Loan Estimate?
The Loan Estimate (LE) replaces the early Truth in Lending (TIL) statement and the Good Faith Estimate (GFE) and provides a summary of the key loan terms and estimated loan and closing costs.
Lenders must provider the LE to consumers within three days after they submit a loan application containing the following information:
- Social Security number
- Address of home to be purchased
- Estimate of the home’s value (typically the sale price)
- Amount applicant wishes to borrow
Issuing an LE does not mean that the lender has approved or denied the loan; it only means that the lender has committed to honoring the fees described in the LE, as long as the loan is later approved without any changes in circumstance affecting the loan application.
What happens after the borrower gets the Loan Estimate?
After receiving the LE, the borrower must inform the lender that he wishes to proceed. Lenders have established different requirements setting forth what a client must do in order to indicate that intent.
Lenders cannot charge any fees, including application or appraisal fees, until clients indicate their intent to proceed; the only fee lenders can charge at this point is a reasonable fee for a credit report.
After 10 business days with no indication, the lender is no longer required to offer the terms initially offered in the LE. If the lender closes the application, the borrower will need to start over from the beginning.
What happens when the client states an intent to proceed, and what if the Loan Estimate needs to be revised?
Once a client indicates they intend to proceed, lenders may require payments for an appraisal, application or other loan processing fee. In some circumstances, an LE may need to be revised.
Common reasons for issuing a revised LE include:
- The client decided to change loan programs or the amount of the down payment.
- The appraisal on the home came in higher or lower than expected.
- The client’s credit status changed, perhaps owing to a new loan or a missed payment.
- The lender could not document overtime, bonus or other income provided on the client’s application.
What is the Closing Disclosure?
The Closing Disclosure (CD), which replaces the final TIL statement and the HUD-1 settlement statement, comes into play after the consumer has indicated intent to proceed, providing a detailed accounting of the transaction.
When do consumers see the Closing Disclosure and what does it include?
Consumers must receive the CD three business days before closing on a loan.
The CD must contain the buyer’s and the seller’s real estate brokerages’ and agents’ names, addresses, state license ID numbers, email addresses and phone numbers. If this information is unknown, the form can’t be completed.
What happens if there are last-minute changes to loan terms?
Any significant changes to loan terms will require the lender to issue a revised CD, triggering a new three-business-day review period.
The CFPB has said that last-minute changes are unlikely and would most likely involve:
- An increase in annual percentage rate (APR) by more than 1/8 of a percent for regular, fixed-rate loans, or 1/4 of a percent for adjustable loans.
- A prepayment penalty being added, making it expensive to refinance or sell.
- Changes to a basic loan product, such as a switch from fixed rate to adjustable interest rate or to a loan with interest-only payments.
How are the documents retained for records?
Creditors must retain copies of the CD and all related documents for five years after consummation; Creditors/servicers must retain the Post-Consummation Escrow Cancellation Notice (Escrow Closing Notice) and the Post-Consummation Partial Payment Policy disclosure for two years.
For all other evidence of compliance with the integrated disclosure provisions, including the LE, creditors must maintain records for three years after consummation of the transaction.
What happens if the creditor sells the mortgage and doesn’t service it?
If a creditor sells, transfers or otherwise disposes of its interest in a mortgage and does not service the mortgage, the creditor must provide a copy of the CD to the new owner or servicer of the mortgage as a part of the transfer of the loan file.
Both the creditor and this new owner/servicer must retain the CD for the remainder of the five-year period.
What hasn’t changed about the mortgage process?
Does TRID apply to preapprovals or prequalifications?
TRID does not make changes to preapprovals or prequalifications.
Does TRID apply to reverse mortgages, HELOCs or other loans?
TRID doesn’t apply to:
- Reverse mortgages
- Home equity lines of credit (HELOCs)
- Chattel-dwelling loans, such as loans secured by a mobile home or by a dwelling that is not attached to real property
- Loans made by a creditor that makes five or fewer mortgages in a year
For these types of mortgages, creditors must continue to use the Good Faith Estimate (GFE), the HUD-1 Settlement Statement and Truth in Lending Act (TILA) disclosures, as applicable.
What other exemptions exist?
There is a partial exemption for certain transactions associated with housing assistance loan programs for low- and moderate-income consumers.
via Inman News’ Amy Swinderman
How did we get here? What do we need to do about it?
One thing so few people in the title industry are talking about is the fact that TRID has practically changed the title agency’s status. From main player and key central pillar in the homebuying process, to a 3rd party service provider. The moment the title agency is no longer responsible and signing out on the (what used to be the HUD-1) Closing Disclosure, and that responsiblity has crossed the road over to the lender, the title agency has lost it’s “leader of the homebuying process” status. And that’s major. For the long game.
But wait… there’s more frightening stuff around the corner. Ready? Right now, the lenders are put in a very delicate situation of signing out on something they are not completely in control, the settlement. No matter how much technology you throw at it, the day when lenders will be fed up with penalties and fines and decide to handle settlements in house, that day will be here sooner than later.
So probably the hardest working, most responsable players in the industry, title agencies have received an unfair treatment, as if the “truth in lending” was somehow taken away by settlement agents.
How did we get here and what to do about it?
Why are we here? Significance is the keyword. If title agencies would have fulfilled the role of the leader of the homebuying process, the driver in the community, at scale, title agencies’ words would have weighed more during the drafting and implementation of TRID.
The problem is the solution. Be SIGNIFICANT.
We want to provide as much value as possible to ALL homebuyers and sellers. To provide as much value as possible to Realtors and Lenders, to such an extent that they cannot do their job the way they do, without Title Security, as their title company. We are achieving this through marketing skills, great content creation and education. We have the tools to help you be successful.
TitleCapture is an important part of the solution. This app provides instant title quotes, seller net sheets and buyer estimates (via the TitleCapture Title Agency App).
via article by: Alex Samant, Co-Founder and Marketing Manager of TitleCapture
The other shoe has dropped: With thousands of loans closed under the new regulatory regime now making their way to the secondary market, investors are refusing to buy them due to compliance problems and loan document errors.
*With thousands of loans closed under TRID making their way to the secondary market, investors are refusing to buy them due to compliance and documentation issues.
*The majority of infractions are minor and technical in nature, such as failing to include an agent or broker’s contact information or inconsistencies among forms.
*The biggest sticking point on the real estate side of the transaction appears to be the use of third-party authorization forms to give agents access to a consumer’s Closing Disclosure.
*Anticipating delays and adding extra days to the transaction timeline is one way agents can hedge against roadblocks.
With the Consumer Financial Protection Bureau’s (CFPB) TILA-RESPA Integrated Disclosures (TRID), or “Know Before You Owe” rule now in effect for four months, it’s no secret that the sweeping change to the mortgage application process has impacted homebuying for all parties involved. Reports of compliance issues are quite common.
In December, Moody’s Investors Services released a credit outlook report in which its analysts estimated that several third-party firms found TRID violations in more than 90 percent of the loans they audited.
The reasons why investors are rejecting these so-called “defective” or “scratch-and-dent” loans may surprise you, as some of the infractions are minor and technical in nature, according to two of the nation’s top RESPA compliance attorneys.
A roundtable seeking answers…
Marx Sterbcow, managing attorney of the New Orleans-based law firm Sterbcow Law Group, and Rich Horn, the former CFPB attorney who helped write the TRID rule and now has his own firm in Washington, D.C., teamed up to publish a list of the top 10 reasons mortgage investors are rejecting TRID loans.
The list was discussed last month on a cross-industry trade group conference call involving the National Association of Realtors (NAR), the Real Estate Services Providers Council (RESPRO), the Mortgage Bankers Association (MBA), the American Land Title Association (ALTA) and others.
“The liability and risk environment were already high before TRID, and TRID has done nothing but escalate it,” said John Campbell, a research analyst at Stephens Inc. “If lenders and private investors aren’t willing to take on the risk of buying potentially tainted loans — loans that could put them at future risk one day — then the market loses funding sources and liquidity. There’s a grace period from the GSEs (government-sponsored enterprises) which helps, but that’s just one side of the market.”
Here are the 10 reasons investors are refusing to purchase TRID loans, according to the attorneys, as well as some tips for how agents can help prevent these issues from happening.
Top 10 reasons investors are rejecting TRID loans
1. The Loan Estimate (LE) and Closing Disclosure (CD) bear the same date.
Under TRID rules, a creditor may not provide a revised LE on or after the date the creditor provides the consumer with the CD. Because the CD must be provided to the consumer no later than three business days before consummation, the consumer must receive a revised LE no later than four business days prior to consummation.
2. On the CD, title fees aren’t being input properly.
The regulatory text requires a space between “Title” and a hyphen, followed by “Settlement Agent Fee.” Some forms erroneously say, “Title-Settlement Agent Fee,” when they should say, “Title — Settlement Agent Fee.
3. Page 5 of the CD is missing certain contact information, such as the real estate agent or broker’s license number.
Some lenders preparing the CD are leaving this information off the form because it isn’t necessarily included on all sales contracts, which vary by state.
NAR is working with its state associations to educate agents on this issue and possibly include this information on all sales contracts. The attorneys noted that if an individual is not required to have a license number, you can leave that cell blank. You should be using your license identification number, not your NMLS identification number, which is typically only obtained by lenders and brokers.
4. The CFPB’s Office of Regulations stated in a webinar that if the alternative CD is used, there is no place to show subordinate financing on the alternative CD, and there is no requirement to do so.
Essentially, each transaction will have its own cash to close, and the settlement agent has to figure out the “master” cash to close.
5. On page 1 of the CD, the title company’s “file number” is not included.
This is the settlement agent’s file number “for identification purposes.” The CFPB has stated that it “may contain any alpha-numeric characters and need not be limited to numbers.”
Settlement agents are advised to use any number that they assign to the file in their own systems to identify it, and it may contain both letters and numbers.
6. Failure to meet legal disclosure requirements.
For example, the lender or bank sent the loan file to the investor with a copy of an executed, third-party authorization to release the nonpublic, personal information (NPPI) form to real estate agents, giving them access to a borrower’s CD.
Such forms are viewed as “insufficient” in the secondary market because they do not meet the disclosure requirements of some laws, including Regulation P and the Gramm-Leach-Bliley Act. Some state real estate associations, such as those in Louisiana and Texas, have created their own authorization forms, but Sterbcow cautioned that investors are rejecting them.
7. Some settlement agents are not providing sellers with the CD, or are providing the HUD-1 or ALTA Settlement Statement instead.
Those forms cannot replace the CD under the TRID rules.
8. Lenders are reporting that their settlement agents still do not understand the simultaneous issuance rules.
Therefore, they are getting estimates that do not comply.
9. Incorrect use of the “Optional” designation.
This designation is used for insurance, warranty, guarantee or event-coverage products disclosed under the “Other” category, such as optional owner’s title insurance, credit life insurance, debt suspension coverage, debt cancellation coverage, home warranties and similar products.
10. Fee names on the LE and CD do not match.
The attorneys cautioned that a title company or settlement agent can change the fee names if circumstances change, but those fee names should remain the same on both forms from then on.
Advice for agents
Although agents may view this list and think most of the errors don’t apply to them, Ken Trepeta, RESPRO’s president and executive director, painted a picture of how these issues may play out and impact the entire housing industry.
“If lenders can’t sell the loans to investors, they may go out of business — particularly small- and moderate-sized mortgage lenders and banks that cannot portfolio loans,” Trepeta said. “So there will be fewer options for consumers, and credit could be constrained.”
In addition, “if investors are nitpicking technical issues, it is just going to slow down the process further as people double- and triple-check everything before they allow a transaction to close,” Trepeta said. He anticipated this happening, and in his previous role as director of real estate services for NAR, he advised agents to add 15 days to their transaction timeline.
“It is also why I said people should not wait until closing to address issues, because every little thing is going to be scrutinized, and getting approvals for changes will take time and every change will require an approval,” he said.
“So everything needs to be done right the first time, even though there are cure provisions. Because of buybacks, robo-signing and all the lawsuits in the past, we are now in an era with zero tolerance for even minor errors or deviations.”
NAR President Tom Salomone agreed, adding that anticipating longer closing times “is still an important practice as the industry continues to adapt” to the TRID rule and new closing process.
“December’s existing-home sales are a reason for cautious optimism that the work to prepare for Know Before You Owe is paying off. Nonetheless, our data continues to show longer closing timeframes, and that remains a cause for concern,” Salomone said.
In particular, the sixth item on this list — concerning the use of third-party authorization forms to give agents access to a consumer’s CD — seems to be the biggest sticking point for the real estate side of the transaction. Trade associations are attempting to work with the CFPB to get some guidance on this issue.
Samuel Gilford, a spokesman for the CFPB, said the bureau is aware of the concern, but noted, “These privacy concerns existed before the Know Before You Owe mortgage disclosure rule and are governed by Regulation P, which was not changed by that rule.
“In general, real estate agents and their clients have historically been able to negotiate these legitimate privacy concerns, and we expect they will continue to do so,” Gilford said. “We would note that Regulation P contains various exceptions from prohibitions on sharing personal financial information, and continue to listen and gather information about whether the purposes expressed by residential real estate brokerages and their agents would meet any of those exceptions.”
The Real Estate Industry Scrambles to Adapt to New Federal Disclosure Law
- TRID is extending the closing time of real estate transactions.
The process does seem to be improving compared to October as lenders and title companies work out the kinks.
- The complicated federal law that went into effect in October with the ominous name TRID is extending the closing time of real estate transactions, according to a sample of transaction cycles in two Western states, Arizona and Oregon collected by a leading title company.
TRID, which stands for the Truth In Lending Act-Real Estate Settlements and Procedures Act Integrated Disclosures rule and is also called “Know Before You Owe,” is a government initiative to make mortgages more transparent and easier for consumers to understand.
But the change added significant tweaks to the longstanding industry closing process, and Realtors, lenders and title companies are scrambling to adapt to the new rules.
Closings extended because of delays
In Arizona, about 17% of transactions scheduled to close on November 30 were extended into December because of TRID delays, according to research prepared for Inman. Resale transactions are taking anywhere from 45 to 60 days to close as opposed to the average of 30 to 45 days.
“It takes 20 to 25% more time to close these transactions, taking into consideration the coordination of data exchange between the lender and the settlement agents, and the extra added review time” said Pat Stone, CEO of WFG (Williston Financial Group).
He did say the process does seem to be improving compared to October, as lenders and title companies work out the kinks to achieve compliance with the new law.
In Oregon, about 35% of transactions scheduled to close on November 30 were pushed over into December. Resale transactions are taking anywhere from 45 to 50 days to close.
According to Stone, “the workload per TRID resale transaction seems to be about 30% longer because of the increase in communication volume; training with the lenders on what is needed; reading extensive instructions; repetitive data input, coordinating and often re-coordinating signing times; and re-keying information that keeps getting deleted because of ill-prepared technology systems.”
The long-anticipated change to the mortgage process went into effect on October 3.
The law was passed to prevent problems that surfaced during the subprime lending crisis when consumers were seemingly unaware of what they were signing up for with their home loans.
The new law requires new disclosure forms from lenders explaining the loan estimate and loan closing. The Loan Estimate form combines the Good Faith Estimate (GFE) and the Truth in Lending Disclosure into a shorter form that’s supposed to be easier to understand and explains the mortgage loan’s key features, costs and risks at the beginning of the mortgage process.
Under TRID, a lender cannot impose any fee, except a reasonable fee for obtaining a consumer’s credit report. The industry feared that this could take lenders longer to pre-approve home borrowers because of the extra steps.
The Closing Disclosure form combines the final Truth-In-Lending statement and the HUD-1 settlement statement into a shorter form that promises to be easier for the consumer to understand and provides a detailed account of the entire real estate transaction, including terms of the loan, fees and closing costs.
A series of deadlines are imposed on the process to prevent delays including a requirement that lenders provide the Loan Estimate form to consumers within three business days of applying for a loan. The Closing Disclosure form must be provided at least three business days before loan consummation.
According to the National Association of Realtors, if 10% of transactions experience closing issues due to TRID, as many as 40,000 transactions a month are affected by the new rules.