Nov. 7: The benefits of TRID, LE & appraisal fees, the CFPB & class action lawsuits, research on TRID & prequals

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...

“Rob, is Bank of America going back into the reverse mortgage business?” I don’t know, why don’t you ask it? Seriously, I do management got out of it due to reputational risk. But the industry has made some changes recently to lessen that risk, so it wouldn’t be surprising if management decided to re-enter that channel.

 

Speaking of reverse mortgages, Jessica Eden, a reverse mortgage specialist with LeaderOne Financial, itemized the benefits of TRID in her opinion. (Editor’s Note: Truly Ridiculous Ineffective Disclosures.) “First, under TRID, if a customer completes our application online they have provided their e-consent to receive other documents electronically. However, the best part is that if I send additional disclosures to them (including the final CD) then it can be assumed that they have received (and therefore reviewed) the disclosures. We do not need them to confirm receipt of these documents. Since they provided an e-consent, then we can assume delivery after three days of them being sent. This saves us from having to manually print and mail documents if they have yet to view them online. Saves time and money!

 

“Second, TRID has changed the re-disclosure process so that less COC are used. Since a COC is only issued under fees changing over an allowed tolerance, it eliminates the number of LEs that are sent to a consumer. In the past, I was resending a new GFE with every small change (and to be honest, customers get confused and tired of having to sign another ‘intent to proceed’ with each GFE). Third, the consumer should be helped by the fact that the HUD 1 is gone and is replaced by the CD. The CD (for a purchase) does not have any info for the seller’s part of the transaction and is much less confusing than the HUD 1. There is no column of debits and credits but rather a simple breakdown of all fees, cleared listed, and then a cash to close number.

 

“Fourth, the APR is also much less pertinent but still used in small print. The APR was supposed to be a comparison tool for consumers who chose to shop for a mortgage. But in reality, most had no idea how it worked and were confused when they saw it thinking their interest rate was somehow raised without knowing it! The APR, while still present on both the LE and CD, is much less used. Instead a very clear fee breakdown is used that is identical from lender to lender. Now consumers can actually compare fees at different lenders without worrying about an APR.” Thanks Jessica!

 

Molly Dowdy from Mercury sent, “In the rush to TRID compliance, an important change may be overlooked by many lenders and appraisal management companies – the fact that they now have to quote the appraisal fee up front to the borrower on the Loan Estimate, before placing the appraisal order.  If they don’t have accurate fee estimates, they’ll have to eat the overages and they could be substantial. We’ve heard that fees come in over about 35% of the time, and the average overage is more than $100.  There are many different approaches to tackling this problem from the 700 lenders and AMCs using our software, and we put together a resource anyone can use here.”

 

Yes, the shadow of the CFPB is never far away from residential lending, and it has certainly taken “liberties” in its “zeal” to accomplish its mission. And just when you think you understand something, the CFPB comes out with something that just counters what they had been saying – like the “rules” for mini-correspondent. “Rob, have you been watching the CFPB on arbitration? Its own study said it was better than lawsuits. But the CFPB is trying to enlighten the consumer to the rip-off of arbitration. Take a look!”

 

Attorney Alan Kaplinsky recently wrote a piece on “Our thoughts on Director Cordray’s arbitration comments to the CFPB’s Consumer Advisory Board.” “In his remarks today to the CFPB’s Consumer Advisory Board, Director Cordray denigrated arbitration agreements as a ‘free pass’ that allows companies to ‘sidestep the legal system, avoid big refunds, and continue to pursue profitable practices that may violate the law and harm consumers on a large scale.’ He also repeated the CFPB’s claim that class actions ‘can result in substantial relief for many consumers and create the leverage to bring about much-needed changes in business practices.’

 

“As we have previously commented, Director Cordray’s remarks are not supported by the data in the CFPB’s arbitration study. That data demonstrates that most consumers derive no benefit from class action litigation. The threat of a class action (presumably the ‘leverage’ Director Cordray is referring to) adds nothing but a huge layer of expense in defending these largely meritless lawsuits, benefiting only plaintiffs’ attorneys.

 

“We firmly believe that, should the CFPB enact its proposal to ban class action waivers, most companies will abandon arbitration with the result that arbitration will no longer be available as a quick, efficient and inexpensive way of resolving disputes. (Indeed, Director Cordray’s suggestion that the threat of class action litigation is needed to bring companies into compliance seems to marginalize the CFPB’s role in ensuring compliance through its significant supervisory and enforcement authority.)

 

“Moreover, as I suggested when I represented industry at the CFPB’s field hearing on arbitration earlier this month, arbitration could serve as a helpful complement to the CFPB’s complaint portal.  More specifically, arbitration could be used to resolve those disputes that are not resolved through the complaint process.  Director Cordray appears willing to give up the potential consumer benefits that arbitration could bring to the CFPB’s complaint process to preserve the class-action device which provides virtually no benefit to consumers.”

 

Yes, more and more legal issues are creeping into residential lending every year. As an example this week American Mortgage Law Group and the Community Mortgage Lenders of America are co-hosting a complimentary (free) webinar titled, “Insurance Needs for Mortgage Bankers – What You Need to Know to Protect Your Company in the 21st Century.” It will on Tuesday, November 10, 2:00PM EST/11:00AM PST. The webinar will feature guest speakers from JMB Insurance Agency, Inc. and from Bankers Insurance Service, Inc. who will be discussing the various insurance policies mortgage bankers and brokers should carry, limits required for compliance, how and when to make claims, and common pitfalls to avoid. “Our guest speakers will be discussing policies such as Mortgage Bankers Bonds, Property and Casualty, Employment Practices Liability, D&O, State Licensing, Professional Liability, and Cyber Liability.  If you want to make sure you are fully covered, or if you want to learn more about maximizing the coverage you already have, be sure to join us for this comprehensive webinar on Insurance Needs for Mortgage Bankers.”

 

On the subject of disclosure confusion attorney Steve Lovejoy writes, “Lenders are looking for safety, so if there is a way to provide safety through one procedure/disclosure that covers both a ‘shop around’ prequal and a prequal requested by a specific seller, lenders will use it. I agree that the regulations and Official Staff Commentary appear to allow requiring verification docs prior to receiving the 6 Application elements. But in the face of lenders asking, ‘If I tell the borrower not to give me one of the elements, am I okay?’ I prefer to recommend that they use a written disclosure and ‘voluntary’ provision of verifications signed by the borrower. At least until CFPB is more clear and citable on the issue, lenders will want something they can point to in an exam, as opposed to having to prove the negative that they didn’t have all 6 application items.”

 

Bill Kidwell with IMMAAG writes “I feel it is really necessary to clarify what appears to me to be a widely misunderstood aspect of TRID and ‘pre-qualifications’/preapprovals, namely, ‘TRID prohibits a lender or broker from requiring documentation of the six magic application components until a Loan Estimate is issued and accepted by the applicant.’ From much of what I have read, this seems to be the understanding that is permeating the industry. Readers should know that in my opinion pre-6 elements verifying documents may be requested. The fact, however, is that until all six ‘magic’ components are received, an MLO may request verification of anything necessary to prepare for a pre-qualification or preapproval. Lenders want to know, ‘If a broker is requested by a consumer to provide a pre-qualification or preapproval and does not have the six elements required by 1026.19(e) to constitute an application, is the broker or creditor permitted to require the consumer to provide verifying information to substantiate the declared information?’

 

“The general belief is that until all six elements are present there is no rule-based prohibition on requesting verifying information. From my perspective the problem is that the articles addressing the subject of document verification are worded in ways that imply no verification can be required until the Loan Estimate is issued.

 

However, the rule at §1026.19(e) does not require a Loan Estimate until all six elements are present. Unfortunately, the rule is somewhat vague regarding the allowance for verifying information if all six elements are not present. With a little extra reading of the rule’s commentary at 78FR 79767 we can see that the Bureau feels that pre-quals and preapprovals won’t be negatively impacted because, generally the loan amount and/or address is not known or precise. I believe the interpretive problem arises from other less clear language found later in the rule at FR 79768 and 80316. It is easy to see the confusion caused by the rules commentary because on the one hand that the Bureau states it believes pre-quals/preapprovals will be unaffected because of the vagaries of loan amount and property address, but then the commentary confused things by omitting the allowance to request documentation prior to issuing an LE if an ‘application’ was not yet fully present.

 

From 78 FR 79768, 12/13/2013: final § 1026.19(e)(2)(iii), which prohibits a creditor from requiring verifying documentation before issuing a Loan Estimate. See the section-by-section analysis of § 1026.19(e)(2)(iii).

 

Bill’s note went on. “But, when the Official Interpretations are considered, it becomes clear that the prohibition to collect additional information does not trigger until all 6 elements are received. The key that gets misstated is that an MLO may not condition the issuance of an otherwise required Loan Estimate on receipt of supporting documentation.

 

“From Supplement to §1026 – Official Interpretations:

 

‘In general an application means the submission of a consumer’s financial information for purposes of obtaining an extension of credit. For transactions subject to §1026.19(e), (f), or (g) of this part, the term consists of the consumer’s name, the consumer’s income, the consumer’s social security number to obtain a credit report, the property address, an estimate of the value of the property, and the mortgage loan amount sought. This definition does not prevent a creditor from collecting whatever additional information it deems necessary in connection with the request for the extension of credit. However, once a creditor has received these six pieces of information, it has an application for purposes of the requirements of Regulation Z.’

 

“I believe it is critical the industry to have a common understanding of this permitted activity. If I am the only one inferring from the public comments that we are being told documents can’t be required before issuing a Loan Estimate even if an application (all 6 elements) is not present; then I apologize for wasting peoples’ time making this point. On the other hand if the commenters actually believe that MLOs are prohibited from requiring verifying documentation if all elements of an application are not present; this clarification needs to be made public.”

 

 

(Rated PG for language, and yes, it is repeat, but still funny and with Veteran’s Day approaching…)

In the greatest days of the British Empire, a new Commanding Officer was sent to an African jungle outpost to relieve the retiring Colonel.

After welcoming his replacement and showing the courtesies (gin and tonic, cucumber sandwiches) that protocol decrees, the retiring Colonel said, “You must meet Captain Smithers, my right-hand man; he’s really the strength of this office. His talent is simply boundless.”

Smithers was summoned and introduced to the new CO who was surprised to meet a crooked, toothless, scabbed and pockmarked specimen of humanity, with three strands of hair on his head – a particularly unattractive man of less than three foot tall.

“Smithers, old man, tell your new CO about yourself.”

“Well, sir, I graduated with honors from Sandhurst, joined the regiment and won the Military Cross and Bar and three DSO’s after 12 months of expeditions behind enemy lines. I’ve represented Great Britain in equestrian events and won Gold Medals in the middleweight division boxing, archery gold, wrestling and won 2 golds in the Olympic games. I have researched the history of…………………………”

Here the Colonel interrupted, “Yes, yes, never mind that Smithers, the CO can find all that in your file. Tell him about the day you told the witch doctor to “Go —- herself.”

 

 

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.)