July TRID Update - Should you be trusting settlement agents to prepare Closing Disclosures?
Want to revisit one of the basic policy decisions under TRID?
I know what you're thinking - should we struggle to prepare Closing Disclosures internally, or let settlement agents do this themselves? Well to tell you the truth, in all this excitement, I've kinda left this issue alone. But being the penalties fall under the Truth in Lending Act, the regulation with the most severe penalties available, up to $1 million per day, you've gotta ask yourself one question: "Do I feel lucky?" Well, do you, punk?
But seriously - this is a major decision. Do you have settlement agents prepare closing disclosures? Many mortgage lenders have decided to prepare Closing Disclosures internally (not feeling lucky). But there are plenty of other lenders that do allow agents to prepare disclosures on their behalf (feeling lucky).
Now to avoid being run out of the industry, I need to clarify something. My advice is NOT simply to prepare disclosures internally and to shut out settlement agents. This decision will vary by lender. I also need to be crystal clear that there are many settlement agents who should be trusted to prepare and deliver closing disclosures - plenty of agents that are actually better suited for disclosing this in an accurate and timely manner than the closing departments they will work for.
That out of the way, I need to voice a few things -
1)Lender is responsible for the Closing Disclosure
We've heard this ad nauseam. But it bears reminding that this is significantly different than pre-TRID! Any mistake made in preparing the CD is attributable to the lender, not the agent. End of story.
Honestly, there were plenty of times where the lending community found themselves responsible before (e.g., the Duplicate Discharge fiasco). Now the rules are set up to make lenders solely responsible. Will that affect the performance of your settlement agents? That depends who they are.
2)Worst Closing Disclosures come from Settlement Agents
I'm sorry, but it's just true so far. When our auditing team comes across a REALLY big mistake on a Closing Disclosure (or a disclosure with an unusual number of small mistakes), it's almost always one that was prepared by a settlement agent.
Why? It does seem that some settlement agents have a disadvantage in software - even the most rudimentary LOS seem to prepare better disclosures than some systems that closing agents are using on a regular basis. Maybe there are other reasons, i.e., maybe lenders are paying more attention to the detailed financial terms. Example: How about an $800,000 construction loan with a 30-year term disclosed as a 3/1 ARM at 2.75%, but the Closing Disclosure section that asks "Can this amount increase after closing?" showed "No" for the Interest Rate. This leaves the lender with a fixed rate loan. Yikes.
3)Establishing trust with agents
If you work with a closed list of settlement agents and trust every single one, then maybe having them prepare closing disclosures will work for you. But are these agents that specialize in real estate closings? That have a proven track record?
Even those lenders working with a large number of agents have options. Not every lender has the capacity to generate every Closing Disclosure internally, especially if rates keep sinking! (A good problem to have.) In this case, a strong review of disclosures before delivery to the borrower can help. Note: Emphasis on strong. If you're trusting an agent to prepare disclosures on your behalf, make sure a knowledgeable person is making sure they're doing a good job.
In Other News:
Have you seen local Radius Bank's partnership with a tech firm that allows it to offer student loan paydowns as a reward? Story from the Boston Globe here
Really intriguing stories within the recent action by CFPB against BancorpSouth for fair lending problems (more information available here), such as undercover CFPB agents and audio recordings of bank meetings with racial slurs?
Feedback is good. Receiving only negative feedback can create a culture of fear. Do your underwriters receive specific, timely, acute feedback in any other form than audit reports (which are invariably always negative)? With that in mind, a friend passed along this really cool story/tool about being better at this
Excerpt from "The Most Fun I Never Want to Have Again: A Mid-Life Crisis in Community Banking," RD Koncerak (2013):
"What do you plan to do with all that money?" The question spoke volumes about expectations for community bank performance prior to the 2007 downturn. After all, the more relative capital a business holds, the lower its return to shareholders. Raising a lot of capital, then, meant laying out bold plans for putting that capital to work. Touchmark's 2007 capital plan called for a minimum equity raise of $31,250,000 in order to accommodate aggressive lending growth along the northeast corridor of I-85. An upper bound of nearly $40 million placed Touchmark at the high end of the range among banks planning to open in that year's class of de novo institutions. Indeed we got questioned about capital planning a lot -- but in every case those questions were geared toward our growth plans rather than our level of capital sufficiency. My, how times have changed!
"You have to be odd to be number one."
- Theodor Geisel
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