There’s no doubt that the Consumer Financial Protection Bureau’s Know Before You Owe rule — or TILA-RESPA Integrated Disclosures if that’s your flavor—requires a great deal of collaboration between title/settlement agents, lenders and real estate agents. Six months in, implementation has not been smooth, but it’s nothing we didn’t expect. This is why the American Land Title Association and many other groups asked for a hold-harmless period for TRID enforcement actions. We knew it would take time to adjust and adapt to the 1,888-page rule and a completely redefined closing process.
Overall, there are a few issues with the rule itself, but the main problems seem to be from adapting to the significant workflow changes, exchanging of information and fee naming. In addition, various interpretations of the regulation have created a litany of approaches to completing the disclosures. Part of the communication issues affecting implementation may involve the lack of experience using new software needed to exchange fee information between settlement agents and lenders. In addition, settlement agents are contending with platforms and requirements that vary from lender to lender.
DISCLOSURE OF TITLE INSURANCE PREMIUMS
One problem with the rule is the manner in which title insurance premiums must be disclosed. The bureau’s calculation for a simultaneously issued owner’s title insurance policy in a seller-pay state results in a lower and even sometimes negative number on the Closing Disclosure. When this happens, it gives the consumer the impression they will pay less or even get a credit for purchasing an owner’s title insurance policy. ALTA has informed the CFPB that there is uncertainty about whether the rule permits disclosure of a negative number. Title agents are encouraged to communicate with their lenders to discuss how rates for title insurance policies should be disclosed.
A key area where there’s been confusion among business partners is the sharing of closing documents containing non-public personal information (NPI). While TRID implementation has required lenders, real estate agents and title insurance professionals to radically change the way they conduct business and exchange information, it changed nothing in regard to data privacy. In fact, the rule does not address who may or may not receive a copy of the CD or other settlement statements. We’re hearing that issue may stir debate as some lenders are having difficulty obtaining the seller’s CD. Lenders need seller information to check the accuracy of the borrower’s CD—both for audit purposes and for investors.
Richard Horn, a former CFPB attorney who formed the law firm Rich Horn Legal, said the TRID rule allows seller information to be provided on the borrower’s CD or on a separate document that is not provided to the borrower. Because of privacy concerns, he says the rule allows for the separation of borrower and seller information onto separate CDs. This does not apply to the seller’s closing costs, which must appear on the borrower’s CD.
The separate CDs provided to the seller can either be a standard CD (with the borrower’s information left blank) or a separate seller-specific format of the CD provided in the rule. Settlement agents are required to provide a copy of the seller’s CD to the lender, when the borrower and seller disclosures are provided separately. Accordingly, in all cases the seller information will have to be provided to the lender under the TRID rule.
Access to the CD is also a pain point for real estate agents. One of the primary reasons real estate agents are interested in receiving the CD is because they have to report certain data fields to the MLS to close the listing. These requirements vary by state, so there is not a uniform set of data fields that will satisfy the MLS. Most lenders, however, will not provide the disclosures to the real estate agent even if they obtain permission from the buyer.
If you plan on sharing a closing document, such as a settlement statement, with a third party, consider whether you are sharing any information that would be considered NPI under the FTC’s guidelines and whether you have met requirements of the Graham-Leach-Bliley Act for sharing data.
ALTA is working with the American Escrow Association, National Association of Realtors and other groups to develop a data privacy solution in escrow states such as California.
FEE NAMES MUST MATCH
In addition to preparing for new timing requirements and tighter fee tolerances, settlement agents and lenders must use the same fee names or descriptions on the loan estimate and CD. The industry should develop standardized fee names or descriptions, to the extent possible, to simplify this process.
Because the CFPB wants consumers to be able to compare fee estimates with what’s actually charged at closing, the 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. Examples of variances in naming include “valuation services” versus “appraisal.” Some states require a specific terminology for fees. In Texas, the fee for termites must be called “wood destroying insect fee.”
SECONDARY MARKET CONCERNS
While there are reports that TRID is delaying closings, issues with the rule are affecting the secondary market as investors refuse to purchase loans because of potential compliance issues. In December, Moody’s reported that several third-party firms found TRID violations in more than 90% of the loans that were audited. Many of these violations were “technical” in nature, which included the need to use the same spelling convention or the absence of a required hyphen.
While the GSEs and the Federal Housing Administration have given lenders a grace period for technical compliance with TRID, there’s fear that some lenders could get stuck with loans if investors refuse to buy them, causing potential liquidity problems—especially for independent mortgage banks. Earlier this year, we know one major investor was rejecting 90% of mortgages being offered to them by correspondent originators because of TRID errors.
It appears that many compliance issues can eventually be corrected through continued collaboration with business partners, industry education and correcting software systems. One of the great benefits of TRID was the theory that consumers would have more knowledge about their transaction because they would get better information about the transaction in advance.
While consumers are receiving their CDs three business days before closing, the reality for the settlement industry is that settlement agents and escrow officers are getting the documents on the day of signing, often just an hour or two before the signing is to occur, making it difficult for them to assist consumers.
We know Rome was not built in a day. Neither was the perfect mortgage transaction, but with continued collaboration and communication, we, as individuals and an industry, can provide an improved consumer experience—because that should be the goal for all of us.