FROM THE PRESIDENT S DESK Training For Tomorrow: The TRID

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1 Spring 2015 FROM THE PRESIDENT S DESK Training For Tomorrow: The TRID Spring Training No, I m not talking about your favorite sports team or athlete. I m talking about getting in shape for the August 1st effective date of the TILA-RESPA Integrated Disclosure (TRID) Rule. The CFPB has combined the HUD-1 and final Truth-In-Lending (TIL) statement to create a Closing Disclosure (CD), and the Good Faith Estimate and early TIL disclosures are replaced with a Loan Estimate (LE). IN THIS ISSUE From the President s Desk TILA-RESPA Integrated Disclosure Rule Glossary of Terms PA G E Basics of the TILA-RESPA Integrated Disclosure Rule 4 CFPB TILA-RESPA Integrated Disclosure Rule The Questions Attorneys and Agents Need Answers to, Some Answers, and Why We Don t Have All the Answers... Yet 5-6 Corporation of Love 7-8 Review the CFPB s latest TRID updates at Lenders Embrace ALTA Best Practices 8 Schedule training dates and begin training your employees on your business policies and procedures: Protecting NPI, securing and safeguarding escrow funds, managing consumer complaints. Holiday and Office Closures 8 Announcement 8 Let s talk about what we can do to train for tomorrow. This newsletter is dedicated to giving you information about the new forms (without the burden of all the details) to keep you and your staff informed and ready for the significant changes in settlement procedures that go into effect August 1, Training For Tomorrow Learn the lingo in the attached Glossary of Terms Start a trial run on the TRID. Go to regulatory-implementation/tila-respa/#disclosures for review of sample Closing Disclosure forms. Watch your inbox for our Spring Training every Wednesday beginning March 25th. - Josie Lubiejewski First American Title Insurance Company, Penn Attorneys and Ohio Bar Title Insurance Company make no express or implied warranty respecting the information presented and assumes no responsibility for errors or omissions. First American, the eagle logo and First American Title, are registered trademarks or trademarks of First American Financial Corporation and/or its affiliates. AMD: 04/ First American Financial Corporation and/or its affiliates. All rights reserved. NYSE: FAF

2 TILA-RESPA Integrated Disclosure Rule GLOSSARY OF TERMS 2-Step Mortgages: An adjustable rate mortgage that has the same interest rate for part of the mortgage and a different rate for the rest of the mortgage is called a 2-step mortgage. The interest rate changes or adjusts in accordance to the rates of the current market. The borrower, on the other hand, might have the option of making the choice between a variable interest rate or a fixed interest rate at the adjustment date. AIR: Adjustable Interest Rate Amount Financed: The loan amount available after payment of the upfront charges. AP: Adjustable Payment APR: Annual Percentage Rate is the borrower s costs of the loan term expressed as a rate. This is not their interest rate. Application (for purposes of the IMD requirements): The submission of a consumer s financial information for the purposes of obtaining an extension of credit, and consists of the submission 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. Business day: Defined differently for the Loan Estimate (LE) vs. Closing Disclosure (CD): For the LE, a business day is a day on which the creditor s offices are open to the public for carrying out substantially all of its business functions. For the Closing Disclosure (CD) and revisions or corrections, a business day means all calendar days except Sundays and legal public holidays specified in 5 U.S.C. 6103(a) such as New Year s Day, the Birthday of Martin Luther King, Jr., Washington s Birthday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans Day, Thanksgiving Day, and Christmas Day. CD: Closing Disclosure form designed to provide disclosures that will be helpful to consumers in understanding all of the costs of the transaction. This form will be given to the consumer three (3) business days before closing and replaces the HUD-1 and final Truth in Lending (TIL) disclosure on impacted transactions. CFPB: Consumer Financial Protection Bureau (CFPB); an entity created by the Dodd-Frank Act. Closing Date: The date of consummation for the Closing Disclosure. Closing Disclosure (CD): Replaces current HUD-1 on impacted transactions and final TIL (Truth in Lending). This form is a statement of final loan terms and closing costs. Closing Insight TM : A suite of services designed to streamline the complex, multi-party closing process and support lender compliance. This Web-based solution delivers a number of process improvements and quality controls to help lenders aggregate fees, generate disclosure documents and reconcile loan estimate data, while helping to ensure process consistency every time. Closing Insight supports the closing process by helping lenders gather loan fee information, collaborate with settlement agents, deliver secure documents within mandated timelines and validate pre-funding and post-closing data. Consumer: Borrower/Buyer Consummation: Occurs when the consumer becomes contractually obligated to the creditor on the loan, not, for example, when the consumer becomes contractually obligated to a seller on a real estate transaction. The point in time when a consumer becomes contractually obligated to the creditor on the loan depends on applicable State law. Consummation is not the same as closing or settlement. Page 2

3 TILA-RESPA Integrated Disclosure Rule GLOSSARY OF TERMS Date Issued: The date the disclosures (Loan Estimate and Closing Disclosure) are delivered to the consumer. Disbursement Date: The date the amounts are to be disbursed to a consumer and seller in a purchase transaction or the date funds are to be paid to the consumer or a third party in a transaction that is not a purchase transaction. Finance Charge: The dollar amount the loan will cost the consumer. IMD: Integrated Mortgage Disclosure (New forms: Loan Estimate (LE) and Closing Disclosure (CD)). The New Rule and Forms apply to most closed-end consumer mortgage loans. It does not apply to home equity lines of credit, reverse mortgages, or mortgage loans secured by a mobile home or by a dwelling that is not attached to real property. The new rule does not apply to loans made by a creditor who makes five or fewer mortgages in a year. Issue Date on LE and CD: The date you deliver or place in the mail the applicable disclosure. Loan Estimate (LE): Form designed to provide disclosures that will be helpful to consumers in understanding the key features, costs and risks of the mortgage loan for which they are applying. Initial disclosure to be given to the consumer three (3) business days after application and replaces the GFE and early TIL. MIC: Mortgage Insurance Case Number MISMO : Mortgage Industry Standards Maintenance Organization. MISMO sets standards of how to format data sent to another party for both residential and commercial property transactions in US markets. By promoting improved data consistency, MISMO aims to reduce costs and increase transparency while promoting confidence in mortgages as an asset class for investors. Ultimately, MISMO standards should deliver cost savings to consumers. MISMO Compliant: Software vendor developed their platform using the MISMO data format standards to send data to other parties. NMLSR ID: Nationwide Mortgage Licensing System and Registry Identification Number New Rule: The TILA-RESPA Rule consolidates four existing disclosures required under TILA and RESPA for closed-end credit transactions secured by real property into two forms: a Loan Estimate (LE) that must be delivered or placed in the mail no later than the third business day after receiving the consumer s application, and a Closing Disclosure (CD) that must be provided to the consumer at least three business days prior to consummation. Recording: The filing of documents with the appropriate government agent affecting real property as a matter of public record, giving notice to future purchasers, creditors, purchasers or other interested parties. RESPA: Real Estate Settlement Procedures Act TIL: Truth in Lending TILA: Truth in Lending Act TIP: Total Interest Paid. The total amount of interest the borrower will pay over the loan term as a percentage of the loan amount. Total Payments: Total amount paid after payment of all principal, interest, mortgage insurance and loan costs as scheduled. TRID: TILA-RESPA Integrated Disclosures UCD: Uniform Closing Dataset. Freddie Mac and Fannie Mae, GSEs (Government Sponsored Entities) have provided a common industry dataset called the Uniform Closing Dataset (UCD) to support the Consumer Financial Protection Bureau s (CFPB) Closing Disclosures. Our Underwriter, First American Title, recently published the UCD MISMO-mapping document. Please note: it s important that lenders and vendors develop a plan for how they will implement the UCD. Using the UCD to implement the CFPB s Closing Disclosure could save you time and resources. Variance: Previously and also known as Tolerances Written List of Providers: A written list of service providers given to the consumer by the Creditor or Mortgage Broker for a settlement service provider that the consumer is permitted to shop for. Page 3

4 BASICS OF THE TILA-RESPA INTEGRATED DISCLOSURE RULE AUGUST 1, 2015 WHAT Changes to the Loan and Settlement Disclosure forms and processes are coming. WHEN The changes will be effective for transactions where a loan application is taken by a lender on or after August 1, WHY Because the Dodd-Frank Act of 2010 mandates the combination of the Truth in Lending Act (TILA) loan disclosures with the Real Estate Settlement Procedures Act (RESPA) Good Faith Estimate and HUD-1 Settlement Statement disclosures. HOW The Consumer Financial Protection Bureau (CFPB), an entity created by the Dodd-Frank Act, issued a new TILA final regulation that, among other things, created two new forms (each with many variations) and new 3 business day delivery requirements. Loan Estimate 3 business days after application Closing Disclosure 3 business days before consummation WHO WILL ISSUE THE FORMS? Loan Estimate Lender or Mortgage Broker Closing Disclosure Lender or Settlement Agent (Escrow). Lender may delegate responsibility to the Settlement Agent (Escrow). ENFORCEMENT The CFPB can levy substantial penalties so lenders will be very cautious: Up to $5,000 per day for any violation of a law, rule, or final order or condition imposed in writing by the Bureau; Up to $25,000 per day for any person that recklessly engages in a violation of a Federal consumer financial law; and Up to $1,000,000 per day for any person who knowingly violates a Federal consumer financial law. IMPACT ON REAL ESTATE PROFESSIONALS Closings may take longer because of 3 business day review periods. You ll be seeing different forms for most transactions. Your contact information and license number must appear on the Closing Disclosure form. (see page 5 of the Closing Disclosure form) Your clients may receive multiple Loan Estimates due to:» Changed circumstances certain defined circumstances that cause the estimated charges to increase by more than the variance allowed under the Final Rule;» Multiple applications with different lenders; or» Multiple applications for different loan products with the same lender. Your clients may receive multiple Closing Disclosures:» Some with a 3 day business day waiting period and some without; and» Some before closing and some after. Page 4

5 CFPB TILA-RESPA Integrated Disclosure Rule The Questions Attorneys and Agents Need Answers to, Some Answers, and Why We Don t Have All the Answers YET By: Ruth Dillingham, Special Counsel, First American Title Boston, MA Is this really going to happen? Isn t a Republican Congress going to repeal Dodd-Frank? It is going to happen; it begins on August 1, 2015, and no, Congress is not going to repeal the law. 1. WHAT IS THIS REALLY? JUST A NEW HUD-1? No, it is not a new HUD-1. The CFPB has created two forms that combine the current Truth-in-Lending disclosures with the current RESPA disclosures (the Good Faith Estimate and HUD-1 Settlement Statement). The new forms are a Loan Estimate (given by the Lender to the loan applicant 3 days after application) and the Closing Disclosure that must be received by the borrower 3 business days before closing. The big issue is not the fact that there is a new form or even the new timelines, although those are important, but rather the liability of the preparer of the form to the borrower for its accuracy. 2. WHY ARE THE LENDERS SO CONCERNED ABOUT THE NEW FORM BEING CORRECT? Two reasons: First, due to the requirements of the Ability-to-Repay and Qualified Mortgage (QM) Rule that started in January 2014, lenders have to know much more about the financial terms of both the mortgage transaction and the purchase transaction, and more information about the property. For example, an adjustment made between a buyer and a seller (such as a seller credit for a betterment that changes the loan-to-value ratio) can impact the salability of the loan on the secondary mortgage market. Lenders are already feeling the costs of non-qualified Mortgage (QM) loans and are looking to tighten controls around changes to the settlement costs without their consent. With regard to the Integrated Disclosure Rule, the lender, and only the lender, is responsible for the accuracy of the entire Closing Disclosure, which contains components of both the RESPA and TILA Disclosures. This differs from the current (2014) situation, where the closing/settlement agent is responsible for the HUD-1 and the lender is responsible for the TIL. This Rule was issued pursuant to TILA, which changes the financial liability dramatically. 3. WHAT DOES THAT FINANCIAL LIABILITY MEAN? Currently, if there is an error on the HUD-1 (an incorrect tax adjustment, the wrong amount of a payoff figure, etc.) it is a violation of Section 4 of RESPA but there is no penalty for noncompliance. While the statute does allow for administrative actions against a violator (such as by HUD or the CFPB) there is no private right of action (the borrower or seller can t sue the closing/ settlement agent or attorney). Page 5

6 CFPB TILA-RESPA Integrated Disclosure Rule Under TILA, if there is a violation, the borrower can sue the lender for statutory damages (up to $4,000) as well as bring a private lawsuit for actual damages, and the penalties in an administrative action under Dodd-Frank can go from $5,000 to $1 million per day. WHAT WE DON T KNOW YET? The impact of this Rule on potential CFPB actions against lenders and the potential for private lawsuits. This is why lenders are taking the issue of who prepares the Closing Disclosure so seriously. 4. WHEN WILL IT IMPACT ME? The specific impact will be felt by settlement and closing agents in a few stages: First: Some lenders have already begun telling their closing/settlement agents that they plan to exert much more control over the current closing process once this Rule takes effect. The most notable example is Wells Fargo which sent a notice* to all its agents on September 24, 2014, stating it plans to prepare the Closing Disclosure. WHAT WE DON T KNOW YET? What other lenders will decide. We expect that most lenders will have decided how they want to handle the issuance of the Closing Disclosure and control over any changes in the first few months of Every settlement/closing agent and attorney should be reaching out to their lenders to see what their thought process is at this point. Second: As lenders decide what level of control they will keep over the final Closing Disclosure and what changes will be permitted, we expect that they will be revising their Closing Instructions. WHAT WE DON T KNOW YET? What those changes will look like. We do think some lenders will use this change in the Rule about conducting a closing to revisit who they use for closing services and their controls over them, and that it may also cause some to incorporate vendor management criteria (such as ALTA Best Practices) into their decision making. 5. WHEN WILL I GET TRAINING FROM FIRST AMERICAN TITLE, MY LENDER AND SOFTWARE VENDOR? Since most lenders are still making management level decisions about implementation of the Rule, First American Title training programs, and theirs, will be coming as they reach those determinations; many software vendors are awaiting specific information from lenders as well. First American Title training on the complete new Rule is in production at this time and will be ready for presentations in April We are also creating a tab in AgentNet for updates on the Rule, as well as links to resources that we create to assist agents. We can assure our agents that we, as a company, have reached out to all of our lender contacts and have a presence at all of the industry discussions taking place regionally and nationally through ALTA, the Mortgage Bankers Association and other trade groups. Further, we have reached out to software vendors (such as SoftPro, RamQuest) and have confirmed that they and the First American products (TARA, TSS and StreamLine) are on line to have all upgrades ready in time to do training for agents using them in early *To read the Wells Fargo Settlement Agent Communication, visit: Page 6

7 CORPORATION of By: Thomas W. Blair, VP, Regional Counsel, First American Title Have you ever attended a wedding ceremony in which the bride and groom take the flame from separate candles to light one larger candle, thereby symbolizing that the two have become one? Well, just as that married couple is considered one in the eyes of the church, if the married couple owns real estate, they are deemed to be one in title. Such ownership is called tenancy by the entirety. Tenancy by the entirety (hereafter referred to as t-by-e) is a type of concurrent estate in real property held by a husband and wife whereby each owns the undivided whole of the property, coupled with the right of survivorship. 1 So, what does that mean? To put it simply: one spouse cannot do anything with the real property without the consent and joinder of the other spouse. The concept of t-by-e ownership is grounded (no pun intended) in common law with a married couple holding title being analogous to the real estate being owned by a separate entity. Based on that analogy, I like to refer to t-by-e as a corporation of love. Keeping in mind the corporation of love analogy, let s go through some of the aspects of t-by-e ownership. Just as a corporation cannot hold title to property if it has not yet been formed, two individuals cannot hold title as t-by-e, with its accompanying benefits, unless they are married to each other at the time of acquisition. If property is acquired by two persons prior to their marriage, the subsequent marriage does not automatically convert title to t-by-e; it is still owned by the individuals in their separate capacity. The couple must transfer title to themselves as husband and wife, or as t-by-e, after the marriage to take advantage of the benefits of t-by-e ownership. Unlike a joint tenancy with the right of survivorship in which the deed must contain certain language to show the intent of the parties to hold title as joint tenants and not as tenants in common, a t-by-e can be created without special language in the deed. The mere fact that the grantees are married to each other when they acquire the property is sufficient to create a t-by-e; the theory being the married couple intended to hold title as t-by-e unless otherwise indicated in the deed. From a practical standpoint, however, it is best if the deed contains a reference to the couple being married, such as John Doe and Jane Doe, husband and wife or something similar. Once the married couple acquires title to real property, one spouse does not have the power to sell, mortgage, lease or otherwise encumber the property without the consent and joinder of the other spouse. Therefore, to have a valid mortgage on the real property, both spouses must be identified as mortgagors/borrowers and sign the mortgage. Notice the underlined portion of the prior sentence. The import is that just having both spouses sign the mortgage is not enough to create a valid lien on the real estate; they must both be identified as mortgagors/borrowers in the mortgage. Failure to do this could result in a Bankruptcy Trustee successfully avoiding the lien of the mortgage. Just as one spouse cannot voluntarily encumber t-by-e real property, the real property owned by a married couple is protected against creditors of one of the spouses, unless the creditor is the United States of America through either a tax lien or criminal judgment. 2 Because it is protected against judgments entered solely against one spouse, the married couple can sell its real property without having to pay judgments against one of them. Page 7

8 Corporation of Love (cont.) Be careful insuring refinance transactions when there are judgments against one spouse, though. If the non-debtor spouse dies, the t-by-e is terminated and judgments against the surviving spouse will attach to the real property retroactively to the date the judgment was filed, thereby having lien priority over our insured mortgage. With that in mind, make sure all judgments are paid off in refinance transactions. The same situation could occur if the couple gets divorced; title converts to a tenancy in common and any judgments against one spouse retroactively attach to that spouse s interest in the property. Upon the death of one of the spouses, title to the real property automatically vests in the surviving spouse. If the surviving spouse sells or mortgages the property, the document should contain a recital with the deceased spouse s date of death; but please refrain from listing the deceased spouse as a grantor/mortgagor. For those of you who are not familiar with t-by-e, I hope this gives you some valuable insight into this type of tenancy. For those of you already familiar with t-by-e, I hope this serves as a valuable reminder of some of the issues surrounding this type of tenancy. 1 In 2002, the U.S. Supreme Court held that a federal tax lien pierced t-by-e ownership and attached to the taxpayer spouse s interest in the property. U.S. v. Craft, 535 U.S. 274, 122 S.Ct (2002). In addition, courts have held that certain criminal judgments in favor of the United States are treated like tax liens and, therefore, pierce t-by-e ownership. See, for example, U.S. v. Goddard, 735 F.Supp.2d 820 (E.D.Tenn. 2010) pertaining to judgments under The Mandatory Victims Restitution Act. Judgments entered pursuant to the Antiterrorism and Effective Death Penalty Act of 1996 are treated in the same fashion. LENDERS EMBRACE ALTA BEST PRACTICES By: Josie Lubiejewski, VP, Division Area Manager and Mike Weber, Executive Assistant More and more lenders are joining the ranks in support of Best Practices. Formal letters have been issued by national lenders Wells Fargo, Bank of America and FirstMerit to settlement agents and attorneys concerning requirements of compliance and the submission of documentation to be used in the vetting of settlement service providers. While many Approved Attorneys work directly with local lenders, paying attention to the expectations of these national lenders is critical if you plan on doing business as a service provider in the future. Maybe you have already been notified by one of the lenders you do business with concerning compliance with ALTA s Best Practices or their expectations of you, the settlement service provider. If this has not yet occurred, you may need to jumpstart the communication process. It s extremely important that you communicate and work with your lenders now to make sure you are aware of and ready to meet their standards for settlement. You won t want to be surprised by lender requirements on or after August 1st! 2 Holiday and Office Closures Our offices will be closed for business in observance of the holidays listed below. Monday, May 25, 2015 Memorial Day Friday, July 3, 2015 Independence Day ANNOUNCEMENT In case you missed it, the Pennsylvania Disciplinary Board released an extensive proposal concerning changes to the Rules of Professional Conduct and Rules of Disciplinary Enforcement intended to reduce the risk of large-scale misappropriation of funds. Here is the link to the PA Disciplinary Board s website for all the details: attorneys/newsletter/2014/september.php#story1 Page 8