Under TRID, Can A Lender Review Loan Documents Prior to Issuing a Loan Estimate?

As part of the implementation of the final rules of the Dodd-Frank Act, one of the most contested issues regarding the changes under the Truth-In-Lending and Real Estate Settlement and Procedures Act  Integration Disclosure (aka TRID) is the question of whether or not a lender can review loan documents prior to issuing a Loan Estimate. The Consumer Financial Protection Bureau has issued clarification on this and many other questions that lenders, realtors, closing agents, and borrowers have through the Federal Reserve System’s audio conference series on consumer compliance issues that can be found here:  Index of TRID Questions Addressed During Webinars-2.

The short answer to the above question is yes.  A lender CAN review loan documents prior to issuing a Loan Estimate if the borrower volunteers the information.

Borrowers:  When shopping for a home loan, ask your loan officer for a Pre-Application Cost Estimate for any loan program you wish to consider.  This is non-binding to the lender and allows you to view different options prior to deciding which loan program, rate, and terms are best for you.  Information quoted is based on many assumptions including:  loan amount, intended occupancy, credit score, property type, valuation, timing of rate lock, and whether or not your debt-to-income ratio falls under 43%.  Changes to any of these assumptions may result in changes to quoted terms or access to loan programs.

Lenders:  If you haven’t programmed Pre-Application Cost Estimates for your loan officers to assist borrowers in their selection process, you’re behind the 8-ball and may be exposing yourself to unnecessary compliance and fair lending risks.   Also, take a moment and remember when you were buying your first home.  Didn’t you want to see all the closing costs in writing before you made your buying decision?  Before you gave a stranger your social security number?   Allow your LOs to provide the proper tools for borrower decisioning and train your LOs to go over the above mentioned assumptions.  With a clear explanation of risks, an educated borrower will appreciate the lesson and identify you’ve earned their business.

Sylvia M. Gutiérrez is author of Mortgage Matters: Demystifying the Loan Approval Maze. RealWorks Press: 2015. Available at Amazon, Barnes & Noble, iTunes, and independent booksellers everywhere. Distributed by Ingram.
Licensed and registered mortgage loan officer with NMLS id: 372427
Diversity & Inclusion Co-chair, NAMB – Association of Mortgage Professionals
Government Affairs Chair, South Florida Mortgage Bankers Association
Associate Member, National Association of Real Estate Editors

The CFPB Has Confirmed What Loan Officers Have Always Known

In a January 2015 study, the CFPB has confirmed what loan officers and mortgage brokers have always known, the first provider to engage with the borrower has the highest likelihood of acquiring the loan transaction. For about 77% of borrowers, the mortgage shopping process stops after their first application. That is significant.

The interest rate on a mortgage is one of the key components of the mortgage’s total cost, and offered mortgage interest rates vary across lenders, implying that consumers can potentially save a significant amount of money if they shop effectively. But interest rates are only one component of finding the right lender match. To shop effectively, a consumer must must know what features and benefits are available and what eligibility standards are applicable. Not all lenders offer the same loan products and not all lenders follow the same credit criteria.

Key findings from the National Survey of Mortgage Borrowers include:

      1. A sizable share of borrowers report that factors not directly related to mortgage cost, including the lender or broker’s reputation and geographic proximity, are very important in their decision making. Borrowers who express such preferences are much less likely to shop.
      2. Almost half of consumers who take out a mortgage for home purchase fail to shop prior to application; that is, they seriously consider only a single lender or mortgage broker before choosing where to apply. The tendency to shop is somewhat higher among first-time homebuyers.
      3. The primary source of information relied on by mortgage borrowers is their lender or broker, followed by a real estate agent.
      4. Consumers who report being unfamiliar with the mortgage process are less likely to shop and are more likely to rely on real estate agents or personal acquaintances.

 

The study goes on to ask consumers what characteristics – besides interest rates or other mortgage terms – may play an important role in their choice of lender or broker. While none of these characteristics were considered very important by a majority of the borrowers, these characteristics were very important for a sizable minority of consumers:

  • Having an established banking relationship
  • Reputation of the lender/broker
  • Having a local office or branch nearby
  • Recommendation from a real estate agent/home builder

 

For those consumers who had a tendency to shop, these are the primary characteristics that motivated them:

  • Lender/broker operates online
  • Recommendation from a lending website
  • Reputation of the lender/broker
  • Recommendation from a real estate agent/home builder
  • Recommendation from a friend/relative/co-worker
  • Spoke my primary language, which is not English
  • Having a local office or branch nearby

 

The bottom line is this… Consumer education on the mortgage lending process is critical for potentially saving thousands of dollars over the life of the loan.

Are Realtors ready to explain the implementation of the 2015 TILA-RESPA Integrated Disclosure Rule to homebuyers?

According to a recent survey conducted by Wells Fargo, the answer is a resounding “No.”

Here’s a primer…
As part of the implementation of the final rules of the Dodd-Frank Act, there will be a combination of various RESPA and TILA regulations to create all-new disclosure documents designed to be more helpful to consumers, while integrating information from existing documents to reduce the overall number of forms.

Implementation of this new rule impacts two processes of the mortgage transaction and affects everyone involved in real estate and goes into effect October 3rd, 2015*. As Realtors are typically the ones who have the first interaction with homebuyers, its important that they are provided with educational resources to clarify the impact these changes will make upon borrowers in their home loan shopping process and with the scheduling of loan closings when the rule’s implementation can potentially require last minute negotiations for sales contract extensions.

Key Features of the Integrated RESPA/TILA forms include:
-When applying for a loan, the new Loan Estimate (LE) document replaces the Truth-in-Lending Disclosure (TIL) and the Good Faith Estimate (GFE).
-At loan closing, the new Closing Disclosure (CD) replaces the Final TIL and HUD-1 Settlement Form.
-Loan applications taken prior to October 2015*, require the use of the traditional GFE & HUD-1. As such, lenders will be telling closing agents for months to come whether to use the HUD-1 or the new CD at loan closing.

In essence, consumers will receive one document instead of two and implementation of the rule will expire the traditional Good Faith Estimate and the HUD-1 Settlement Form for certain loan transactions, but not all. These rules apply to most closed-end consumer mortgages. They do not apply to home equity lines of credit (HELOCs), reverse mortgages, or mortgages secured by a mobile home or by a dwelling that is not attached to real property (i.e., land). Oddly enough, for these loans, the old forms will continue to be used which will create a slew of issues for both lenders and settlement agents.

The Consumer Financial Protection Bureau (CFPB) governs implementation of the rules which define a loan application as the collection of these six items: 1) borrower name, 2) borrower Social Security Number, 3) borrower income, 4) property address, 5) estimate of property value, and 6) mortgage amount requested. Once these six items are collected, lenders are not permitted to require other items before issuing a Loan Estimate, as had been allowed previously before issuing TIL disclosures and/or GFEs.

The Loan Estimate
The Loan Estimate (LE) has been designed as a comparison tool intended to provide financial uniformity for borrowers with which to shop different lenders and aims to provide them with a better way to understand the information being given. Uniformity of the LE throughout the marketplace also applies to timing. The LE must be delivered to the borrower within three business days of taking a loan application. No fees can be collected and no Intent To Proceed (ITP) can be requested until an applicant has received the LE much as is required in today’s operating environment with the Good Faith Estimate.

Effects on Implementation and Unintentional Consequences
In the shopping phase of the mortgage lending process, a borrower traditionally expects to collect various pre-application cost estimates to view loan program options and these cost estimates can then be used to compare the same offerings from different lenders. These estimates are non-binding to the lender because they are based on certain assumptions which include:
-credit score
-property type (single-family, condo, PUD, number of units (1-4)
-value of property
-loan amount
-intended occupancy (owner-occupied, second home, investment)
-debt-to-income ratio (DTI) <= 43%
-date and time of pricing request

A fault of the proposed LE is that it doesn’t list all assumptions the lender has made in its calculation of pricing for clarity of comparison from one lender to another.

To provide a pre-application cost estimate, a lender needs only three of the six components that define a loan application – borrower name, estimate of property value and mortgage loan amount requested. Therefore, providing pre-application cost estimates does not trigger the issuance of regulatory disclosures for loan application.

Today, there is no rule in existence that prohibits a lender from issuing of a pre-application cost estimate prior to a borrower making full loan application. After August 2015, again, there is no rule that will prohibit this activity. Post August 2015, a pre-application estimate is prohibited to look like either the new LE or the existing GFE and will need to include specific language that it is not to be considered an LE.

Overall, the Loan Estimate is intended to give consumers more helpful information about the key features, costs and risks of the loan for which they are applying, but here’s the thing… If lenders begin using the LE in place of designing pre-application cost estimates and if their loan operating systems (LOS) have limitations that simultaneously prohibit the issuance of an LE to only instances where all six components of a loan application are received in order to ensure compliance with the timing of the delivery of the LE to the borrower (as they currently do when issuing a Good Faith Estimate [GFE]), then a borrower will essentially have to make application with a lender in order to receive the Loan Estimate– which is then counterintuitive to the partial intent of the LE which is to compare loan options prior to making application.

Additionally, the TILA/RESPA rule prohibits a lender from requiring that supporting documentation be delivered prior to issuing the new Loan Estimate. As such, in most cases, the LE will be issued based on the unverified information that is provided to a mortgage loan originator (MLO). If borrowers unintentionally misrepresent their income, assets, property type or intended occupancy between one lender and another, the LE’s (and/or pre-application cost estimates) received from each lender will invariably produce different pricing.

The Closing Disclosure
The second component of the RESPA/TILA integrations is the Closing Disclosure and is intended to reduce surprises at the closing table regarding the amount of cash borrowers will need to bring to the closing table. The new Closing Disclosure (CD) is a blend of the existing Truth-in-Lending (TIL) disclosure and the Settlement Statement (HUD-1). It’s important to note that the new CD is governed by the Truth-in-Lending Act (TILA), not the Real Estate Settlement Procedures Act (RESPA). TILA provides different accuracy expectations and enforcement provisions than RESPA, as well as some differences in definitions, with associated risks and penalties that are much more severe than RESPA.

The biggest change that will come from the TILA-RESPA Integrated Disclosure Rule is that the borrower must receive the Closing Disclosure at least three business days prior to consummation as opposed to the current one day requirement of delivery for the HUD-1.

TILA defines consummation to be: “The time that a consumer becomes contractually obligated on a credit transaction.” Each lender is left to decide at what point it considers that a borrower has become contractually obligated on a transaction. Although a 3-day right of rescission rule applies when refinancing owner-occupied properties, many lenders are choosing to define the consummation date as the date the borrower signs the loan documents even though technically, the borrower still has three days to rescind the offer.

While its affect is no doubt a positive for all parties, its implementation is creating major challenges for lenders and settlement agents alike. Traditionally, settlement agents prepare the HUD-1 Settlement Statement. In this new environment where lenders are required to show compliance of delivery of the Closing Disclosure to the borrower, there is much debate and concern over who is responsible for the accuracy of the CD. Lenders can only guarantee their fees. Settlement agents are responsible for ensuring all other fees are accurately represented on the closing statement. This marriage of responsibilities is requiring lenders and settlement agents to open better lines of communication much earlier in the process.

RESPA-TILA Integration Details
The new Loan Estimate consists of three pages and the Closing Disclosure consists of five pages.  For borrowers and Realtors, to view the proposed new disclosures, visit the Consumer Financial Protection Bureau (CFPB) homepage and scroll to the Participate tab and then select the dropdown for Mortgages. For lenders, the CFPB has also issued a detailed 96 page explanation of these two new forms which can be viewed online at Guide to the Loan Estimate and Closing Disclosure Forms.

 

*Updated July 2015 to reflect the CFPB’s decision to delay implementation from August to October 2015.

Keys to Honing the Negotiation Skills of Mortgage Sales Professionals

Today’s selling environment presents mortgage sales professionals with many challenges. For most of us, our entire day is spent influencing, persuading, leading, and negotiating to move another person from a state of indecision to one of decision. Mortgage is a high trust transaction. Anything we say to a potential client who doesn’t trust us, is met with resistance. When what we do is help borrowers make choices that are in their best interests and for which, without our knowledge and influence, they would not have the ability to make on their own, we must learn the skill of quickly building trust. If we can’t connect, we can’t convince.

In today’s environment, borrowers have more sources of information, there are more people involved in the loan transaction, and there is a more structured process—all of which make obtaining a mortgage loan a complex and often chaotic endeavor. Borrowers used to value loan officers for our availability, as well as for our ability to provide program options and quote pricing, but borrowers today are looking for something they can’t get online, from automated systems, or from uninformed salespeople.

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Reducing Your Monthly Payment When Your Existing Mortgage is Underwater

Many clients come to me complaining that they’ve been trying to get a loan modification for years and they keep getting denied. All they want to do is reduce the interest rate on their current loan. When property values declined and they found they were upside down on their debt, lenders told them they weren’t eligible for regular refinancing options. When they contacted their loan servicer to be considered for a loan modification, they learned they were not eligible for the program because they had not undergone financial hardship and were making timely payments on their mortgage. While the rest of the country was able to refinance into new loans with lower monthly payments, these borrowers were stuck with higher payments.

They’d ask, “What are we supposed to do? Stop paying our mortgage so that we qualify? This doesn’t make sense.” No, it doesn’t make sense and there is a solution. In 2009, the Home Affordable Refinance Program (HARP) was developed exactly for this transaction scenario.

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Can the Mortgage Industry Provide Good Customer Service?

I was at the NAMB conference for Mortgage Professionals this past weekend in Las Vegas and in between sessions, I stopped in for a quick bite at The Burger Bar at Mandalay Place (great sweet potato fries!). I sat at the bar and had an interesting conversation with the gentleman who sat to my right. We quickly identified that we were both in town for professional conferences. He lives in Maryland and is a consultant for government affairs. Part of his duties include auditing banks, and as such he is limited to where he can choose to make mortgage loan application as there can be no appearance of influence.

He began sharing with me his current saga in dealing with one of the big three.  I of course, was fascinated to hear about the challenges he is facing.  He selected this particular lender because he is cost driven.  He had initially approached his former mortgage banker with whom his prior transactions had gone smoothly – including construction financing – but decided not to proceed with him on this new loan because he was able to “secure” financing at a .125% reduction with one of the big three. He quickly told me how his credit score is over 780, its a jumbo loan, both he and his wife are employed and how he expected the process to go smoothly.

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Great Things Happen When the CFPB, the OFR and Loan Officer’s Unite.

cfpb, ofr

I just wrapped up a few days of learning and connecting at the Florida Association of Mortgage Professionals Expo in Orlando and I have to say…what a GREAT experience this was. It’s invigorating to see mortgage professionals gathering together, at their own expense, for continuous education on the many changes impacting our industry.

Here are a few of my takeaways…

Loan Officers are Trusted Financial Advisors.
In my home state of Florida, the Bureau of Enforcement within the Office of Financial Regulation who conduct examinations on licensees, continue to do a great job in quickly identifying the bad apples and bringing them to justice while at the same time, reporting on the successes of the majority of industry professionals who hold themselves to a high standard of integrity. In today’s highly regulated environment, nationally registered and state licensed mortgage loan originators are mostly competent, educated, and informed professionals who are empowered with the right tools and governance to deliver quality loan files for quick decisioning. If you still have your doubts, check out this article about how easily our skill set transfers to another highly regarded profession: The Skills Mortgage Brokers and Loan Officers Can Transfer Into a Career as a CPA

Loan Officers carry the responsibility of knowing the regulations that guide us.
At lunch, I was chatting with an industry colleague who had a concern over an unusual request she had just received from her employer’s Compliance dept. They’d sent mandatory instructions to change the email address registered on the National Mortgage Licensing System & Registry (NMLS) to match her business email address, as provided by her employer. While this didn’t make sense to either one of us, because the NMLS is the central control point over all licensing issues – irrelevant of where loan officers work – I encouraged her to communicate directly with the NMLS for clarity. One quick phone call and she was directed to the landing page of Account Management where she found the below posted under Update Profile:

The Email Address listed in this section will be the email address that you will receive all NMLS system generated notifications regarding your license. The email address should be a personal and accessible email address.

Knowledge of the law is on us, not on Compliance. Which leads me to….

The CFPB is our friend.
I must admit that since its inception, it seemed to me and many other mortgage professionals, that the Consumer Financial Protection Bureau (CFPB) was against our industry, and that’s simply not the case. While their main goal is to protect the consumer, they rely on us individuals to let them know when something doesn’t seem right. Yes, it remains frustrating to mortgage professionals who contact the bureau seeking a better understanding of the new laws, that we are responded to with these instructions:

You can contact our Office of Regulations to receive informal guidance from a staff attorney about the Bureau’s regulations at (202) 435-7700. Any such informal guidance would not constitute an official interpretation or legal advice.

Because I was able to engage with humans at the Expo, I learned that as it stands, the CFPB is not funded to directly educate mortgage professionals about the many laws it governs and its staff attorney’s represent the CFPB – not the consumer and not mortgage professionals.   The bureau relies on privately funded organizations such as the Mortgage Bankers Association (MBA) and their subchapters, the National Association of Mortgage Bankers (NAMB),  state associations and private attorney’s, to interpret the law, provide opinions and educate the industry based on those opinions.

In the CFPB’s efforts to improve clarity of the many regulations that are impacting our industry, they have increased their efforts on community outreach and have updated their website with materials intended to provide guidance to the industry.

Additionally, we are now given the opportunity to sign-up to receive Mortgage Rule Updates by registering on the mortgage specific CFPB newsletter.

(Note to CFPB…It would be nice to see the landing page highlight anything other than Submit a Complaint. Why not initially direct your audience to the positive changes within the industries you regulate and the many successes the bureau has accomplished? Just a thought.)

Ignorance is not Bliss.
Mortgage professionals who are not active in the associations that represent our profession are providing a real disservice to themselves, to our profession and to the clients we serve. If there’s something you don’t like, tell someone who can actually do something about it. You aren’t connected to anyone who can do something about it? Seek these people out by attending conferences. Invest in your education. There are too many changes happening at the same time to be complacent about learning the facts.

The NAMB National Convention is coming up next week. Have you registered? I’ll be there.

The MBA’s Annual Convention & Expo is being held October 19-22nd. Have you registered? I’ll be there.

Can’t go to both? Choose one. It doesn’t matter whether you work for a wholesaler, a correspondent, or a lender – seek education and make the connections with those empowered to affect change. Can’t go to any this year? Search and find your local chapters, become active members and attend the monthly activities. If you live in South Florida, join me at Hotel Intercontinental in Doral (our new meeting venue) for the Mortgage Bankers Association of South Florida monthly luncheon on September 11th where Florida State Congressman Ritch Workman will be presenting on mortgage industry regulation. Come prepared with a question for him.

Get involved, do something.

Know Your Market
I had the pleasure of meeting mortgage industry news commentator Rob Chrisman, who provides the community with his candid remarks about the goings on of Mortgage through emails touching us on average 5-6 times per week. The marketplace is definitely building momentum with the launch of non-QM products. Learn what your competitors are offering.

Acknowledge and Appreciate
Many thanks to those who lent me an ear during the event and who candidly, and thoughtfully, answered my many questions to the best of their abilities. These include but most certainly are not limited to: John Councilman – NAMB President, Don Frommeyer – NAMB CEO, Valerie Saunders -Board Member NAMB and FAMP Past President, David Schroeder – Director, Marketing and Training, QuickenLoans, Ginger Bell – Education and Compliance Specialist, Go2Comply and the team from the Florida Office of Financial Regulation led by Director Greg Oaks, Bureau Chief’s Andy Grosmaire and Jason Booth and Financial Administrator Paul Rhoades.

A special thank you to Jim Dunkerley, President and CEO of Fir$t Funding for bringing us the CFPB and fostering a discussion on the ABC’s of mini-correspondents, to Robert Villalon, President MBA-SFL for lending me a chair at his Mortgage Information Services booth in between the many events and to Brian Webster, Originations Program Manager of the Consumer Financial Protection Bureau for allowing me to express my concerns over the lack of specific guidance regarding documentation and usability of foreign earned income for non-permanent residents of the US and its effects on the industry’s lending abilities to the consumer.

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