May 30: Tax liens with HOAs; policy for re-disclosure for APR decrease; have lenders sheltered Realtors & Builders from compliance hurdles?

Rob Chrisman

Rob Chrisman began his career in mortgage banking – primarily capital markets – 31 years ago in 1985 with First California Mortgage, assisting in Secondary Marketing until 1988, when he joined Tuttle & Co., a leading mortgage pipeline risk management firm. He was an account manager and partner at Tuttle & Co. until 1996, when he moved to Scotland with his family for 9 months. Read more...

A while back G.K. wrote, addressing the plight of the broker’s relationship with the wholesale lender. “Rob, I can sympathize with the LO on the loss of control and how we, as the originator, are the main focus for blame when escrows don’t close on time, or other issues that come up.  I could not agree more.  Most lenders don’t give a crap about the things we, as originators, have to deal with on the front lines.  We are the main focus, no matter whose fault screw ups are. Not just the lenders, but title, escrow, and pretty much anything else.  Blame the lender, it’s easy.

 

“I have been both a broker and a banker over the years and while brokers may have access to better pricing, the offset on that is that they lose complete control of the file once it is submitted to the wholesale lender.  They are one, or a few, files out of many and most don’t have a whole lot of clout when it comes to turn times and other issues that come up.

 

“Wholesale lenders are infamous for poor communication, poor attitudes and a general “I don’t give a crap” attitude.  They have so many files, that they will get to them eventually and you just have to wait.  There are exceptions, of course, but in general, the larger wholesalers are so busy that they really don’t care about one loan here or there. During periods of high volume, finding more people to do the additional work is difficult, and most wholesale lenders would rather have longer turn times than hire more people only to have to lay them off when things slow down once rates blip up.

 

“I was always frustrated when I brokered loans to wholesale lenders. They tell you all the great things they offer, but usually fell short.  It is the old over promise and under deliver, which is a poor business model. I’m sure you will hear from wholesale managers singing the praises of their companies and why having all the regulatory hoops to jump through makes it so difficult to close loans faster, and that LO’s don’t know what’s going on behind the scenes, so we are just ignorant grunts and we should just accept things the way they are (If so, then tell them to go out in the field and originate loans for a while so they can see how the real world is.  Then maybe they can work on fixing the issues in their companies.).

 

“But, if that happens, then it just shows the arrogance and lack of understanding (or caring about) what happens in the trenches.  Mortgage brokers are the ones that keep the wholesale lenders in business.  Without them, there would be no wholesale lenders.  So all the rudeness brokers deal with, all the lack of customer service, everything, frustrates them to no end.  I remember brokering a loan a couple of years ago, and the lender had to re-learn how to underwrite that type of file since they had not done one in a year.  They kept coming back telling me why they couldn’t do the loan, and I had to keep giving them the HUD guidelines to show that they could.  The loan eventually closed, but I felt like I was training them on how to underwrite a loan and they were charging me $1,000+ in lender fees to do it.  Needless to say, I would never deal with that company again, but it certainly didn’t endear me to the Realtor I was trying to earn business from.

 

“There are a lot of good companies out there, but it’s not always easy to find them, but we continue the search.” Thanks G.K.!

 

“Rob, I have been with the same lender for many years, and have worked with several builders and Realtors for decades. I am surprised that no one has discussed how lenders have sheltered and coddled Realtors and builders from changes in the compliance landscape for years. And now with TRID looming the coddling will end – there is no way around the potential time delays when issues change. The best customer service will be for lenders to educate counterparties rather than protect them from the industry-wide changes.” Good point.

 

 

“Rob, I wanted to know if anyone has clarified the comments from Cordray pertaining to the re-disclosure of the CD if the APR increases. He did not state if it increases or decreases (changes or is incorrect) by more than .125%. So far all of the training materials I have reviewed state if the APR is incorrect. We had the same issues when GFE 2010 was released and many investors initially took the stand re-disclosure was required if the change was up or down. Do you think we will get clear clarification pertaining to the re-disclosure only being required if the APR increases and not required if it decreases by more than .125%?

 

I am not a compliance expert, but the CFPB has publically stated that the existing requirements for APR accuracy have not been changed. The technical requirement is that if the APR is no longer accurate, as measured by a difference of 0.125% for a regular transactions and 0.250% for an irregular transaction. But the analysis continues for overstated APRs => the APR decreases. Reg. Z discusses this in great detail but basically if the overstated APR was due to an overstated finance charge, and subsequently the reduction of the finance charge results in a decrease in the APR by more than 0.125%, then the APR is still considered to be accurate therefore does not require a new 3 day waiting period. My guess is that the CFPB may issue a statement soon.

 

To further elaborate, a “change of circumstance” is a RESPA term related to the GFE. If someone asks whether or not the regulations require the TIL to be re-disclosed and a 3-day waiting period ensue, the technical rule is this: If the APR has gone up more than 1/8 of 1% for any reason, a re-disclosed TIL and waiting period is required.  If the APR has gone down by more than 1/8 of 1%, and it is SOLELY because the finance charge has decreased, no re-disclosure is required.  If the interest rate has decreased since the most recently disclosed TIL, then a re-disclosure and new waiting period is required.

 

Some lenders, however, both banks and mortgage banks, require it. Why? Because many investors require it although it is pretty clear that it’s not required, based on the CFPB’s comments. Lenders who require it have to compete with those that don’t. Franklin American, for example, sent out an FAQ this week. And probably more after August 1st “just in case” unless the CFPB sends out some clarification.

 

(FAMC wrote to its clients, “Q: What happens if a lock is extended, the lender credits are reduced and the APR increases? A: Lender credits are negative charges to the borrower and fall in the zero tolerance bucket. If the amount of lender credits disclosed on the CD (Closing Disclosure) is less than the amount of lender credits disclosed on the LE, it is an increased charge to the borrower for purposes of determining good faith and would not be allowed. Comment 19(e)(3)(i)(5). If the APR varies by more than 1/8th, a new CD will need to be provided and starts a new 3 business day waiting period.”)

 

Yes, the industry will survive TRID, but to that end there certainly is a lot of attention being focused on rolling it out. I received this from Linda Bomar of www.indecomm.net. “TRID Tip of the week: Closing Instructions. It’s time to plan the new set of closing instructions you will provide to the closing agents. The instructions will need to describe many new steps and include new statements to clarify the responsibilities of each party.  Most importantly, for at least the first six months, will be identifying whether the TRID rule applies in the first place. The instructions should still consider the usual statements about document signing and underwriting conditions.

 

Going forward you’ll not only need to clarify what needs to be done, however, but when things can be done. Also for consideration will be whether one set of instructions is enough or should you send instructions twice. Perhaps in the past your company has not been firm about receiving the closing instructions back and signed by the agent. In the new world of TRID, obtaining certification the loan has been closed in accordance with the instructions may offer basic legal protection. What happens if consummation occurs too early? Did you ever think you’d have that problem?

 

“Is it possible a title agent and borrower agree to sign early but date documents forward to get a deal done? Yes this would be fraud, but will most borrowers even know or care how important it is to wait before signing?  As lenders begin to settle their internal steps to ensure the CD is completed correctly and three days is measured accurately, the actual signing of the other documents is now in need of controls.  The funding number or authorization process used by some lenders today may convert to a ‘consummation number’ step serving a broader purpose.

 

“In addition to the instruction is the important purpose the HUD1 serves as certification the loan disbursements occurred as required. The new closing disclosure will no longer serve this purpose as clearly because it is signed and prepared early and potentially with the seller’s details on a separate form. Lenders will need to understand how their closing agents will provide this certification. The closing instructions will need to specify the need for this certification as well as the new list of required forms at closing. Be sure to send these to your closing agents well in advance so they can agree to the terms.” Thank you Linda!

 

Charles McGowan contributes, “In reading your recent market commentary, I see that a reader had an issue regarding Super Lien states and HOAs however, they also have the incorrect perception regarding tax liens. I have seen in the past where other readers raised concern and issue regarding tax lines and as well, noted that they had an incorrect understand so I wanted to comment and correct.

 

“Do IRS liens have priority over mortgages? The Internal Revenue Service has the legal right to place an immediate blanket lien against all personal property a debtor owns–including real estate–if the individual fails to pay his overdue taxes within 10 days after the IRS formally notifies him of the debt. While the federal tax lien gives the IRS the right to repossess any property it wishes, it does not have priority over previously recorded liens. In order to collect on any taxes owed, the IRS must file a Notice of Federal Tax Lien (NFTL).  After the IRS files an NFTL, the tax lien usually takes priority over liens filed later, but it doesn’t take priority over previously-filed liens. Thus, if your mortgage was in place before the NFTL, the mortgage takes priority.

 

“State tax liens may result if you fail to pay state income tax, excise tax or sales tax. As with a federal tax lien, the state taxing authority must file a formal notice of the lien to establish its priority, and it can exercise the lien against any personal or real property the debtor owns. Liens filed before the state tax lien will take priority over it, and liens filed afterward will usually be subordinate. In such cases, a mortgage will take priority as long as you obtained it before the state filed its lien. HOWEVER, Local taxing authorities impose property tax liens when you fail to pay the tax assessed on your real property. Unlike federal and state tax liens, a property tax lien affects only the property that accrued the tax. Also, unlike other tax liens, a property tax lien gains immediate priority over all other liens against the property, including the mortgage and any federal or state tax liens already recorded. Further, In the event of an HOA default that is levied as a lien against the property in the states of: Alabama, Alaska, Colorado, Connecticut, Minnesota, Nevada and West Virginia (Super Lien States), the HOA lien can, if filed correctly, take priority over any existing liens on title for the property.” Thank you Charles!”

 

 

An angry wife was complaining about her husband spending all his free time in a bar, so one night he took her along with him.

“What’ll you have?” he asked.

“Oh, I don’t know. The same as you I suppose,” she replied.

So, the husband ordered a couple of Jack Daniel’s and threw his down in one shot. His wife watched him, then took a sip from her glass and immediately spat it out.

“Yuck, that’s TERRIBLE!” she spluttered. “I don’t know how you can drink this stuff!”

“Well, there you go,” cried the husband. “And you think I’m out enjoying myself every night!”

 

 

Rob

 

(Copyright 2015 Chrisman LLC. All rights reserved. Occasional paid job listings do appear. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of Rob Chrisman.)