Letters About TRID Pros and Cons

Given the information in this commentary this week regarding credit scores, I have been fielding a fair number of e-mails asking about the use of FICO by the GSEs in their underwriting engines. Although they are used as a threshold for certain products in DU, Fannie Mae's Selling Guide confirms that "credit scores are not an integral part of DU's risk assessment (DU performs its own analysis of the credit report data)". As best I can tell this link contains Freddie Mac's stance on credit scores.

 Readers should also know that FHA and VA still use the classic FICO score as do many others in the industry such as MIs and various investors. So the question about accepting new credit scores goes way beyond the GSEs....

 (While we're talking about the agencies, occasionally someone will make the comment about the big correspondent investors being "tougher" on reviewing loans - especially for TRID issues. Readers should remember that Fannie has never reviewed loans for regulatory compliance - their agreement states that the sellers rep & warrant that the loans are compliant. At the industry's request the Agencies have added a review to make sure closing forms are in the file - if they are not seen the loan is sent back. Fannie, for example, wants to assure that they are in the file, but not going to review them. If you have more questions about agency policies you can see Fannie's here and Freddie's here.)

 Switching gears to questions about the fairness of regulations, I received this note from Idaho. "Since the CFPB is so concerned about consumers and how they are treated, why hasn't the CFPB said anything about delays in paying off the original older loan? When it takes several days to get a loan funded, after the docs are signed, the daily interest on refis can really add up."

 (As a quick note on a different topic, readers should know that the CFPB does not have a statute covering real estate agent comp - yet.)

 Yet, in response to the CFPB's recent letter to the industry regarding TRID enforcement, Gary B. contributed, "Good Morning. I must be missing something with all the TRID frustration that the MBA speaks of. Personally we believe that TRID has improved the mortgage closing process. Customers, Title Companies and Realtors are better informed, there are no last minute changes which typically results in errors; we as the lender are better able to monitor our pipelines with realistic closing dates. Some of the TRID regulations are confusing, but once you understand the regulation, you adapt. If lenders would spend as much time attempting to understand the Regulation and less time complaining about something that is not going away, they would all be in a much better position, and move on towards the ultimate goal of closing mortgages." Thank you Gary.

 "Rob, this week you noted that Ellie Mae reported that the average days to close a loan increased by 3 in November. But the real story in is warehouse dwell times to get those loans purchased. My informal warehouse bank survey showed that average dwell time increased by several more days in November with servicing released investors (Agencies excluded, since they do not seem to monitor loans pre-purchase for compliance, including TRID). So before the CFPB pats themselves on the back for instituting a process whose change has 'nominally' affected consumers, who does it think will ultimately pay for the additional warehouse lending dwell time, operational costs, extensions, pool month rolls, re-marketing loans, re-closing loans, etc., in the long run?  Anyone who hasn't figured out that the answer is 'the consumer' may need to re-visit how capitalism works."

 Steve from North Carolina writes, "In NC we now have attorney's generating their own CDs who are saying they are generating the FINAL CD vs. the CD we send (i.e. preliminary CD??). In addition, they are generating their own ALTA Approved Settlement Statement and disclosing this at the Closing/Consummation. Because the CD is a Lender generated form (Federally required) they are assuming the lender has reviewed and disclosed the numbers, etc., to the borrowers and so they simply show the form and get a signature with no real explanation. In our electronic communication to the borrower I'm very concerned that it may be possible that the CDs never get a full explanation. I feel a little like I'm on the last voyage of the TITANIC and yes things are not headed the right direction!"

 And LN contributes, "I think the entire industry has lost their minds with TRID! I am a mortgage broker and I can tell you that it seems every lender has a different interpretation of TRID and how we are supposed to process the loan when it comes to the LE. In most cases, the lender wants us to pre-register the LE to make sure everything has been done correctly, however I can tell some of the lenders really do not have a 100% grasp how the LE is supposed to look like. Therefore we are waiting 3 to 5 days just for the LE to be approved. Once the LE is approved it takes the lender 24-48 hours to e-mail the LE. Once this is done we now can date our application & disclosures for the client to sign, this is more than a week just to be able to submit a loan.

 "In regards to the CD, I was surprised to see most lenders are taking 2-4 days just to send out the CD to the borrower. As you know then you wait for the 3 day period. In this case even a 45 day lock is in jeopardy. The total cost to do a loan is going up again, in addition to 45 to 60 days locks; I am not sure how this helps the consumer??? Lastly, the CD is much tougher to understand than the final HUD, if you ask the avg. borrower he will not understand the CD! Also note for all loan officers the CD does not minus any pre-paids that the borrower paid for such as the appraisal fee(s) therefore it will always show short to close which adds to the confusion for the average borrower. I think this is one more document that we say to the borrower 'just regard what the document says because it is not entirely correct, please see my 1 page fees work sheet which will explain that you are not short to close' (a document that we are supposed to no longer use). I cannot wait to retire because we really have too many stupid people (yes, I said stupid) in government at the CFPB level or many levels in the government, it has finally crossed the line!!!"

 A lender from Wisconsin wrote saying, "I am so tired of the new construction builders tying their home price to their lender... how are they getting away with it?  Instead of making sure a borrower has a CD (that can change) 3 days before closing, why doesn't the CFPB do something about this?!  Charging someone $10,000 more for a home if they don't use their lender?! Come on!! For example, here's a recent note:

'Hi ---,

I know you are in a meeting so I will just send you this offer:

We will accept your offer of $775,000 purchase price with the contingency on their home through January 30^th. This price is contingent on your buyers getting a loan through (Builder Mortgage). If they elect to go with an outside lender, the purchase price will increase to $785,000. $10,000 is tied to using (Builder Mortgage) in this collection. They will need to fill out the online application as soon as possible. We hope that this will be an acceptable solution and look forward to working with you!'

 I asked J. Steven Lovejoy, Esq. with Shumaker Williams, P.C. who replied, "Fortunately or unfortunately, depending upon your point of view, builders are not prohibited by any federal rule or regulation from offering financial incentives to a buyer/borrower if the borrower uses a builder-designated mortgage company (usually an affiliate of the builder owing to some common ownership).  Why doesn't this violate the anti-referral fee provisions of RESPA? RESPA permits financial incentives to be paid by a settlement service provider to a borrower.  Thus if a lender wants to offer "no closing cost," "free appraisal" or other financial incentives to attract customers, RESPA presents no impediment.  This means that, for example, a title company, a mortgage company and a real estate broker could get together and offer a discount on each of their services to consumer buyer/borrowers if the customer uses all three companies.   If there is common ownership of these three companies, the owners could legally derive financial returns based upon their ownership interests, notwithstanding the fact that a referral was made among the companies.  This is the classic "affiliated business arrangement" that RESPA expressly allows.

 "So the builder is allowed to steer the buyer to a preferred lender by offering financial incentives to the buyer/borrower. What the builder cannot do is have the mortgage company pay anything to the builder for the referral, or pay for any of the incentives which the builder is offering to the buyer. That would constitute an illegal kickback under RESPA, even if the builder and the mortgage company were related by common ownership.

 "The last point to be made here is that the CFPB's ATR/QM rule has had the effect of discouraging affiliations between mortgage companies and other service providers.  This is because the maximum 3% 'points and fees' which the lender must stay within in order for a loan to be considered "QM," will include settlement service fees charged to the borrower by an affiliate of the lender.  In recent years we have seen mortgage companies divest ownership in a title company in order to make sure they could meet the QM 3% maximum standard.

  "Builders, however, are different.  The services they offer are not "settlement services" under RESPA, so even if the builder and the mortgage company are affiliated, the ATR/QM rule does not require builder compensation to be included in the 3% calculation."

 Steve's note wrapped up with, "In the 29 years I have been toiling in the mortgage law vineyard, this issue has been hotly debated.  Lenders who do not have an affiliate relationship with a builder believe they are being unfairly "shut out" of the competition, even if the mortgage products they offer are lower priced than those of the builder-preferred lender.  Lenders and their affiliates, for obvious economic reasons, like the arrangement.  However, in their favor, Builders also argue that a close working relationship with a mortgage lender greatly facilitates their sales process and leads to fewer "glitches" and better overall customer satisfaction. I am sure we have not heard the last of this debate."

 And Phil Shulman with K&L Gates reports, "RESPA does not consider a consumer incentive to be a required use. Therefore, the builder can offer a consumer an incentive to use their affiliated lender without violating any laws. The offer is voluntary and the consumer is free to shop for a better rate elsewhere.  In fact, the builder is required to provide the consumer with and affiliated business disclosure form which specifically advises the consumer that they are not required to use the builder's lender and are encouraged to shop around for a better price.

 "As for marking up the price of the home to cover the incentive to use the builder's lender, that is another story. The discount must be a true discount and not be the result of a markup elsewhere in the transaction." Thanks Phil!