May 23: TRID concerns dominate – letters in defense of it, how to improve it, does it apply to OO and NOO loans – or does it matter?
Conferences around the nation continue to show me how the industry is uniting, and letters from readers continue to show me how industry participants are helping each other understand the complexities of residential lending. As I travel to various conferences or to visit with lenders I see common enemies – such as over-regulation and fear of future liabilities – but also a common desire to help clients or borrowers succeed. So what are folks talking about this week?
A broker wrote, “I know that RESPA and TILA are different regulations. RESPA pretty much pertains to all real estate loans but the original TILA was for owner occupied residential properties (for RESPA and TILA purposes 2nd home is considered OO) not for non-owner occupied or commercial loans. Just like the 3 day right of rescission, it was technically it is for OO only. But most lenders require for all, ‘just because.’ I just wonder if the new TRID forms will be the same for OO and NOO?”
In response to this Charles Everson, Chief Compliance Officer with Peoples Bank believes, “In the current world, RESPA and TILA apply to consumer-purpose credit secured by a dwelling (with HELOCs being exempt from RESPA but not TILA). It doesn’t matter what the occupancy status is. Owner-occupied primary residences as well as second homes are covered. Right of rescission, a specific part of TILA, applies only to owner-occupied refinances. Investment homes are by definition commercial/business purpose and are thus not covered (though most secondary market investors require that they be treated as if they are subject to RESPA/TILA). Under TRID, any closed-end consumer purpose loan secured by dirt is covered. Again, occupancy status is irrelevant. Investment homes are by definition commercial/business purpose and are not covered by TRID (though again, the secondary market will likely require that they be treated as if they were covered).” Thank you Charles.
Last Saturday the commentary discussed finding a good title company, and I received this from Andrew Liput, founder, president, and CEO of Secure Settlements. “Because TRID places a burden on settlement agents to assist a lender in managing the proper preparation, execution and delivery of the Closing Disclosure, it is more important than ever to know your settlement agent. Historically these relationships were formed from the bottom up, through referral relationships, but it is increasingly clear that these important service providers must be vetted, approved and managed from the top down.”
And Jeffrey P. writes, “Hey Rob, regarding changes at the closing table, I have found that it is more common for a credit to mysteriously appear at closing as the buyer and seller negotiate back and forth. How will TRID look at that if, say, the Closing Estimate was already produced? Seems like it would result in a delay of closing at the least, correct?”
Speaking of the closing table, last Saturday I had a letter asking about the increase in fees. “Regarding closing fees in Illinois, especially Chicagoland, I was recently discussing this with the owner of a title company that works downstate and was trying to break into the Chicagoland market. He was telling me that what has happened is attorneys are demanding the majority of the insurance premium in order to be their agent. In turn, title companies have jacked up their settlement/closing fee to make up for the premium they are now giving to the attorney.” And this from a veteran LO in the Northeast: “All the comments about how TRID will hurt the consumer feel disingenuous to me. How does 45 days versus closing in 30 days hurt the consumer, how does slowing down the transaction hurt anyone other than those who want or need to be paid faster? TRID came about as the result of interviewing thousands of consumers about their home buying experience. I have to believe that a majority of them said, ‘The numbers we were told before we applied were different than the numbers that were disclosed to us after we applied’ and that ‘we got our closing numbers the day of, the hour of, or even during the closing (this happens all the time), the numbers were not what we expected, or we didn’t have enough time to determine what had changed because we had to close…’. I hear these stories all the time the CFPB must have as well.
“I am not saying that TRID is the right solution to these concerns but concerns were not fabricated out of thin air, and those in our industry who are arguing that this is bad for the consumer need to figure out how to be certain that their systems are strong enough to deliver as promised and on time. There is no reason for an APR or Product change days before a closing and with strong systems and communication we should all be able to meet TRID requirements. Saying that this will hurt the consumer is saying that we cannot serve the consumer appropriately. Slowing down the process is not a negative for anyone once we all adjust to the new normal of timing a transaction. A 30 day closing became a competitive advantage in aggressive bidding situations like we are seeing today and saw in the early 2000’s. Prior to those times 45 and 60 day time frames were expected and typical, few people are really ready to jump into a new home in 30 days, they have been forced into that time frame by market conditions and will adjust to a longer time frame as the market demands that adjustment.
“It will be bumpy in August/September. It will cost consumers more due to compliance costs to lenders… but in the end we need to acknowledge that all of this regulation is in response to our own bad behavior. As we embrace these changes and master them we will re-gain the trust of the consumers we serve and we will be able to lobby effectively to roll back or alter some of the regulatory burden put upon us due to the mortgage disaster…. But we have to earn it first. We know the closing date on day one, now we count backwards and make it clear to all what has to happen to meet that date with a compliant and professional process.”
Casey F. wrote, “In response to: ‘Why not stop TRID totally? We just don’t need new forms.’ Are you kidding? The existing forms are terrible, and create massive confusion. Moreover, they are not consistently completed and the rules for how to fill them out vary depending on the source for the loan. What possible downside could there be to reducing the number of forms required and at the same time giving the consumer well-designed, easily-understood forms, that are consistent from start to finish so the consumer can easily verify that what was promised is what was delivered. (Yes, we’ll have to learn how to explain TIP, but that isn’t that much different than explaining total finance charges on the TIL.) I understand the concerns about the changes in the process, but the forms? Unless the goal is to keep the consumer as confused as possible, there is NO DOWNSIDE to the LE and CD.”
But then this from a veteran broker. “The new forms have more words, but don’t give more info. The current GFE is not perfect, but the new LE is from it also. That being said, the forms are not the worst part of TRID. What is, is the requirement that I must quote a fee and it MUST be exact, but I am not allowed to talk to the person that will ultimately decide the fee is ludicrous. Appraisals and credit reports fees are NOT determined by the originator. Also, they can change depending on the circumstances of the loan/lender, of which I have no control. If the individual that made these comments thinks the LE is going to solve any problems, I believe he is naïve. The only thing that provides the consumer with understanding of any product is communication with the originator. Trying to make a purchase act like a refi at COE is also ridiculous. The individuals writing these rules obviously have NEVER purchased a piece of real estate.”
And this. “Did we need new forms? Yes, but were these the best they could have been? No. Early on in the process Ms. Warren was very eager to hear and incorporate the lending industry’s ideas. That attitude at CFPB changed radically with her departure.”
Recently the commentary noted: “I received another note from a ‘well known in the industry’ source saying, “Rob, although by now the majority of the industry – certainly the vendors – know that TRID will change things, and the majority of them know the basics, I am seeing a big disconnect between the theory and the practice. And uniting those two will be what takes time. Lenders, settlement agents, and real estate agents have to go much farther than merely knowing the changes and looking at comparisons of before and after. They will need to tailor the policies and procedures to accommodate the timelines, file flow, and documents. ‘Who is going to do what?’ within the affected companies. And ‘When are they going to do it?’”
Tim Anderson (with DocMagic, not to be confused with DogMagic which involves a steak-flavored treats) responded to that passage with some information albeit a bit of a sales pitch. “The five of the biggest issues with TRID are fee accuracy – to ensure accurate (APR, GFE & TIL) calculations, ensuring the total loan package is current, complete and compliant (Not just the LE & CD only), rep and warranting legal compliance of both (Calcs & Docs), auto reconciling the initial to final disclosures to be sure data is still within loan variances/tolerances, and having an electronic audit trial, (evidence) of compliance.
“By now everyone and their mother, (since it was just Mother’s Day) should be well versed on the impact and issues surrounding TRID. My question and response is, ‘So what are you doing about it?’ We’ve seen in ad nauseam hundreds of educational sessions and webinars on the subject but who’s providing a viable solution to solve for it? There have been a few vendor announcements but like many in this business they are limited, single point solutions that do not solve for or address the larger issues and process. So DocMagic unveiled its ‘Closing Collaboration Portal’ (CCP) to not only solve the issue of sharing data and delivery of the Closing Disclosure (CD) but entire loan documentation process from loan application with eDisclosure (which includes the Loan Estimate, (LE) and eClosing package (which not only includes the Closing Disclosure, (CD) but the rest of the closing documents to ensure compliance of the total process.
“Receiving proof or verification of receipt of delivery is easily handled with implementing an eDisclosure process which many lenders have already done so with initial disclosures so now with the three day delivery requirement, why would you not do the same for the final disclosure documents, (and not just for the CD)? The other issue with only creating and generating a single electronic document three days prior to consummation is ensuring that the final actually gets back into the closing package three days later at closing. I can see this as another processing issue with ensuring that you have the most recent copy with all the final changes and not a prior version. This is an easy task for us since we already rep and warrant the calcs and documents and support full eSigning of the entire eDocument packages. We are also integrated to more lender LOS systems than most vendor providers to ensure their system of record is kept current throughout the process as well.
“Just like RESPA 1 everyone (LOS, Docprep and Title systems) built their own APR, GFE and TIL calculators to support the January 2010 reg and so most feel they have to develop their own today to support this one. The bottom line is, as before how many of them were actually used and more importantly how many of them also rep and warranted them in this new age of lender third party liability?”
At school Little Johnny was told by a classmate that most adults are hiding at least one dark secret, and that this makes it very easy to blackmail them by saying, “I know the whole truth.”
Little Johnny decides to go home and try it out. He goes home, and as he is greeted by his mother he says, “I know the whole truth.”
His mother quickly hands him $20 and says, “Just don’t tell your father.”
Quite pleased, the boy waits for his father to get home from work, and greets him with, “I know the whole truth.” The father promptly hands him $40 and says, “Please don’t say a word to your mother.” Very pleased, the boy is on his way to school the next day when he sees the mailman at his front door. The boy greets him by saying, “I know the whole truth.”
The mailman immediately drops the mail, opens his arms, and says, “Then come give your real father a big hug.”
(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.)