Open or Closed Attorney List? TRID Preparation Continues ....
Another operational question that we're forced to consider because of the TILA-RESPA Integrated Disclosures ("TRID") Rule is whether to maintain an open or closed attorney list. Pros and Cons ...
80% of the changes created by TRID are contingent upon your system vendors. But a big 20% is left to us--how we will adjust our operations to this fundamental shift. One major operational decision will be whether to maintain an open or closed attorney list.
At First Glance: Many Lean Towards Closed List
So far, among our friends and contacts who have addressed this, it appears many lenders are leaning towards a closed attorney list, i.e. not allowing borrowers to shop for the closing attorney.
Define "Closed"
For these purposes, closed means that you have a list of closing attorneys that the borrower must pick from or the borrower is assigned a specific attorney.
This doesn't come as a surprise. The lender is now 100% responsible for the accuracy of the final disclosure. Are you going to trust an attorney you've never worked with before? That now has no skin in the game? There are also serious concerns about speed-to-close. Do you want an inexperienced attorney gumming up the process, exposing you to risk, and making you look bad?
Downsides of Closed List (So far, it seems like an easy decision to close the list, right? Sorry that it's not so simple!)
0% Tolerance - One problem with closing your attorney list is that you become subject to a 0% tolerance. Unless there's a changed circumstance, the fee estimated on the Loan Estimate cannot change.
Sales & Political Problems - Then there are the same problems we've always had with a closed list. You have a closing attorney on the Board. You get 10% of your volume annually from referrals from closing attorneys not on your list. Borrowers in your market expect to be able to use their own attorney.
On Second Glance: Considering an Open List
So with all that said, we predict that some lenders will be reconsidering their decision to close their attorney list--or at least giving it more serious thought.
Define "Open"
All this means is that borrowers are allowed to shop for the closing attorney. The lender can still give them a list of attorneys, but the borrower must have the right to select off the list if they so choose. Note: The lender can put reasonable limitations on who the borrower can choose if they go off-list, e.g. "must have closed 10 real estate loans in the previous year," or "must demonstrate some proof of training on TRID."
The big benefit of using an open list is that you have more flexibility in tolerances. Specifically ...
10% Tolerance - If the borrower picks one of the attorneys from your list (even though they're allowed to choose someone else)
No Tolerance - There is no tolerance at all if the borrower actually does pick an attorney that is not on the list!
You'll also avoid the political/sales disadvantages of a closed list (see above). Some markets are controlled by closing attorneys ... if you lend in such an area, you'll face the choice of either using an open list or having a list with thousands of attorneys (which would be a nightmare).
Note: One final thought. So long as you provide a list of attorneys, what percentage of your borrowers actually go with their own attorney? If your borrowers are mostly going to pick from the list anyway, why not technically allow them to shop and get the advantages of having the open list? (Of course, to avoid working with the borrower's friend who specializes in family law, you'll put reasonable restrictions on who the borrower can select).
In Conclusion
For many, using a closed attorney list will be the right choice--it will probably be the most popular among community banks and credit unions. But it's far from an open-and-shut case, and using an open list has benefits that lenders should seriously consider.
In other news:
We all know by now, but loan apps jumped almost 50% in the week ending January 9, the largest weekly gain since November 2008, according to the MBAA. Finally, well-earned sunshine after some dark days! And what if you want to take advantage of this uptick in volume but are worried about hiring someone that you will no longer need in 3 months? **Caution, self promotion ahead** That's why you work with a staffing company like us! Give "my uncle" Steve Venti a call at (781) 356-2772, we have plenty of great underwriters, processors, closers, etc. available across New England for temporary assignments and temporary-to-permanent ("try before you buy") arrangements, whichever you prefer.
How's this for tough love? A boy kidnapped at 4 years old was reunited with his father 24 years, only after his mother passed away. Finally seeing his father again, he broke down in tears. His father's response: "You're a man. Don't cry." Has the CFPB created the mortgage industry's version of Kelley Blue Book? This article explains the MBAA's opposition to it and here is a link to the CFPB's new Rate Checker--which says that "In Massachusetts, most lenders in our data are offering rates at or below 3.750%." It also gives the borrower tips on "how to get the best interest rate" such as "Negotiate. Getting quotes from multiple lenders puts you in a better bargaining position. If you prefer one lender, but another lender offers you a better rate, show the first lender the lower quote and ask them if they can match it."
Have you heard the term "false hustle?" False hustle is getting into work early to flip through cartoons. False hustle is catching the earliest flight possible to your vacation destination but spending the first morning watching sportscenter until 11:00. It's originally a baseball phrase that refers to a player who runs all over the place unnecessarily (showing off), but fails to hustle, or can't play loose, when it really matters (e.g., he sprints out of the dugout at the start of the inning but not for a deep fly ball). Here's one perspective on this. Note: This probably is just a more unique way of saying "work smarter, not harder" and "focus on what really matters," but it's more interesting, at least to me!
"Most people fail in life because they major in minor things."
- Tony Robbins
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