While there are reports that the TILA-RESPA Integrated Disclosures (TRID) are making it longer to close mortgages, there may be a larger problem growing with investors on the secondary market refusing 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 percent of the loans that were audited. Moody’s said that many of the violations were “technical” in nature, which included the need to use the same spelling convention or the absence of a required hyphen. Fannie Mae, Freddie Mac and the Federal Housing Administration have given lenders a grace period for technical compliance with TRID.
While there’s reprieve from the GSEs and FHA, 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. According to Inside Mortgage Finance, a major investor has been rejecting 90 percent of mortgages being offered to them by correspondent originators because of TRID errors.
Many compliance issues appear to be items that should be easily corrected through industry education and correcting software systems. Marx Sterbcow, managing attorney of The Sterbcow Law Group, and Rich Horn, founding attorney of Rich Horn Legal, compiled the following 10 reasons why investors are rejecting loans:
1. Loan Estimate and Closing Disclosure are being issued with the same date.
The date listed on the Loan Estimate and the Closing Disclosure should be the date that the respective document was issued. This is the date the disclosure was mailed or delivered to the consumer. This date will not change based on the delivery method. Thus, whether a disclosure was hand delivered to the consumer on January 14 or placed in the mail on January 14, the issue date would be January 14. The point here is that once a Closing Disclosure is issued, a Loan Estimate can’t be issued to udpate tolerance. When the documents have the same issue date, it’s impossible to determine which was issued and received by the consumer first.
2. Closing Disclosure:
Title fees are not being disclosed in the proper format, which should be “Title – Description” (i.e. “Title – Settlement Agent Fee”). There have even been some issues with not having a space in between “Title” and the hyphen. The regulatory text has a space in between “Title” and the hyphen, so keep that in mind.
3. Closing Disclosure:
All contact information is not included on Page 5 (i.e. real estate agent/broker’s license number is missing). Keep in mind that if the contact person (the individual, not the entity) is not required to have a License ID, you should leave that cell blank. NMLS ID numbers are typically only obtained by lenders and brokers, so you typically should not have a reason to put your Title Agency license number in the NMLS ID cells.
4. The Closing Disclosure on refinances does not allow a place to show subordinate financing.
This is correct for the alternative Closing Disclosure. The CFPB’s Office of Regulations stated in a webinar that if the alternative Closing Disclosure is used, there is no place to show subordinate financing, and there is no requirement to do so. Essentially, each transaction will have its own cash to close. The settlement agent will need to figure out the “master” cash to close.
5. Closing Disclosure:
The title company’s “file number” is not being included on page one of the disclosure. The file number is the settlement agent’s file number “for identification purposes.” There is not a lot of guidance about this number. The commentary only states that it “may contain any alpha-numeric characters and need not be limited to numbers.” So, basically, title and settlement agents could use any number they assign to the file in their own system to identify it, which can contain letters and numbers.
“TRID VIOLATIONS IN MORE THAN 90 PERCENT OF THE LOANS THAT WERE AUDITED”
6. Lender/Bank sent the loan file to the investor
with a copy of an executed third-party authorization to release non-public personal information form giving the Realtor access to the borrower’s Closing Disclosure.
7. Provide the seller’s Closing Disclosure:
In sale transactions, the rule places the responsibility on the settlement agent to provide the seller with a Closing Disclosure. However, the rule recognizes that in some instances the settlement agent may meet this obligation by either providing the seller with a seller-only Closing Disclosure or a combined buyer/seller Closing Disclosure.This can be done by either the lender or the settlement agent depending on the agreement between those parties. You should collaborate with your lender partners to determine who will prepare this document so you can ensure you meet your obligations. Many lenders have reported that the settlement agents they deal with are not providing the seller’s Closing Disclosure or instead are providing an alternate settlement ALTA® – American Land Title Association statement. The rule states that an alternate settlement statement cannot be used in place of the seller’s Closing Disclosure
8. Disclosure of Simultaneous Issued Policies:
Lenders are reporting that settlement agents do not understand the simultaneous issuance rules, and they are getting estimates that do not comply
9. Optional designation:
The “(optional)” designation is not being used correctly. Some lenders are using “(optional)” for separate insurance, warranty and guarantee, or event-coverage products disclosed under the “Other” category, such as credit life insurance, debt suspension coverage, debt cancellation coverage, home warranties and similar products.
10. Closing Disclosure and Loan Estimate Fee Names:
The fee names essentially should be the same between the Loan Estimate and Closing Disclosure. However, the title/settlement agent may change fee names—based on changed circumstance—if it was not the title/settlement agent that provided the original fees on the Loan Estimate. If the title/settlement agent provided the fee estimates for the Loan Estimate, the same fee names should be used.
Vanguard Title protects customers from real property title defects and forgeries by providing accurate real estate data, quality escrow services, and insurance against losses. Contact us today at either of our locations – Auburn Hills (248) 751-1000, or Brighton (810) 225-8461.