TRID Enforcement

TRID Enforcement Remains a Big Question


An impressive coalition of nearly 20 trade groups representing lenders, banks, credit unions, title companies and others have banded together to urge federal regulators to provide guidance on how they plan to enforce the new mortgage disclosure regime that goes into effect Oct. 3.

The implementation of the CFPB’s new integrated disclosure rule (TRID) in less than 3 weeks poses significant "challenges" for mortgage lenders, according to a letter signed by the 18 groups. CFPB has indicated that regulators will be "sensitive to the good-faith efforts" of lenders to comply with what is known as TRID, but what constitutes a “good-faith effort” is rather subjective. We really need more specifics from regulators on what that means. (Though the CFPB wrote the rule, enforcement of the new disclosures is spread out among various regulators.)

In their letter of September 8, trade group leaders said: "We urge the Federal Financial Institutions Examination Council to provide needed certainty by articulating precise policies for examining and supervising financial institutions for the initial months after the TRID implementation. The FFIEC should formally implement a clearly articulated transition period that addresses how regulators will oversee and examine regulated institutions for TRID compliance during this transition period."

The signers rightly note that the TRID framework represents a "sea change for every participant in the mortgage lending process," including borrowers, lenders, appraisers, real estate agents, mortgage brokers, builders and other service providers. Not providing detailed guidance as to how regulators will judge “good-faith efforts” is clearly not fair to industry members who are working very hard to implement the new rule.

I urge you to contact your trade group to express your support for the industry-wide effort to get clarity on this important issue. The fall and early winter will be challenging enough without an undefined enforcement threat hanging over everyone’s head.

Referrals and Inducements

Shedding Light on Inducements

I am struggling to understand what constitutes an illegal inducement —and what to do about it — and I seek your input. As we all know, the Real Estate Settlement Procedures Act (12 USC §2607) specifically prohibits the exchange of anything of value for referral of business related to a federally insured mortgage transaction.

We all agree that under RESPA payments tied to numbers of referrals are not allowed. Recently, a number of agreements through which payments are made to “business partners” (generally considered compliant in the past) have been scrutinized by the CFPB and found to be illegal inducements under RESPA. These cases have resulted in crippling fines and other onerous consequences for the participants.

So, what about an instance where a branch manager of a title insurer entices an attorney agent away from a competitor with the offer of a more generous agent split? Or when a service company for attorney agents offers searches and support services for a nominal amount (or free for that matter) to secure an attorney’s membership in its attorney-agent program? What about when referrals of clients are predicated upon required use of an affiliate? Are these practices the natural flow of a briskly competitive free market? Do they constitute questionable market conduct, at best? Or are they simply illegal inducements?

Traditional free market practices (such as these) may not be suitable where the selection of the provider is not made by those who ultimately foot the bill. Because of the state’s inability to adequately enforce RESPA (significantly exacerbated by the current budget crisis in Illinois), we do not receive much guidance through local enforcement. That’s where the consumer comes in.

I wonder how consumers might react if they were made aware of sweet deals among referral sources? Are the costs to consumers higher as a result? With the new CFPB consumer complaint portal we may have an opportunity to see how they react. Educating and engaging consumers about questionable practices may be just the way to get some sunshine on a very shadowy corner of the business. As Justice Louis Brandeis said, “Sunlight is said to be the best of disinfectants.”

What do you think? Let’s talk about it. 

TRID, of course.

In the News  

Presented by Prairie Title         
Commentary by Frank Pellegrini, Prairie Title CEO        

August 24, 2015 – TRID. What else? As we move toward implementation of the new TILA-RESPA integrated disclosure rule in six short weeks it’s a challenge to focus on anything else. On Oct. 3 our world will change dramatically. Rarely does such a drastic, externally-imposed change in the way business is transacted occur in an industry, but occur it will.

TRID is a direct descendant of the Dodd-Frank act, passed into law in 2010 in the wake of the financial calamity that roiled the world beginning in late 2008. At more than 2,300 pages, Dodd-Frank is a behemoth. Among its offspring is the Consumer Financial Protection Bureau which is charged with creating and then enforcing hundreds of rules like TRID that will govern how financial services businesses will interact with consumers.

CFPB’s advice to consumers before they enter the home buying process is: Know before you owe. On the industry side, we had all better “know” long before we get the closing table. Dodd-Frank enforcement penalties are steep. Even one violation can cost you $5,000 and it goes up sharply from there.

It is unclear at this point exactly how stringent CFPB enforcement policies will be in the early months of the TRID era. Directory Cordray stated in a June 3 letter to members of Congress that the CFPB’s “oversight of the implementation of the Rule will be sensitive to the progress made by those entities that have squarely focused on making good-faith efforts to come into compliance with the rule on time.” Clearly, the key term is “good-faith efforts.” We will all make mistakes, but it seems if we prepare properly and make every effort to comply with the new rule the Bureau will be tolerant of those mistakes in the early going.
If you’re looking for more information as you continue to prepare, there are resources aplenty, including:

· CFPB’s Know Before You Owe page
· TRID questions answered during ALTA town hall
· Mortgage Bankers Association guidance
· Realtor.org’s TRID page

Let’s keep the discussion going. Call or email me, or write a comment.

Other stories we’re following:    

NAR: Home Prices Rise in Nearly all U.S. Metros.                      
Cook County Opens e-Recording of Deeds.              
REITs up 5 Percent in July.
Q2 Loan Originations up 22 percent.

Educating the Consumer

For a long time I’ve been perplexed by the self-imposed silence the title industry practices when it comes to home buyers and sellers. In our business, virtually all of our outreach efforts have been aimed at intermediaries (attorney, lenders and brokers) rather than the people whose lives are actually affected by the real estate transactions we process for them.

We let others do our talking for us – typically we don’t talk to consumers until they are across the closing table from us – yet we offer products and services that are invaluable to those very consumers even if they don’t realize it. With TRID implementation around the corner, we have a great opportunity to change that dynamic.

To quote an article by author by Nancy Tarr posted on Housing Wire.com, "Consumers have always looked to real estate professionals for help understanding how to buy and sell a home. Traditionally, real estate agents and brokers have led consumer education efforts, and they will continue to play a leading role. But, it’s clear that lenders, as well as title insurance and settlement service providers, will need to play a larger role in helping home buyers and sellers understand the new residential real estate environment."

The American Land Title Association just released a revised, expanded and updated Closing 101 web site specifically created to offer consumers in-depth information about the home buying/selling process. And with electronic closings coming, it is even more imperative that we ramp up our efforts to educate consumers.

I’ve given a great deal of thought to this idea over time and I believe that now is the time to move toward a new communications model for the industry. We’ve been using web sites and social media to provide information directly to consumers with some success, but we need to couple our social media efforts with direct outreach to consumers through new and traditional media as well as other means of connecting.

What do you think?

Post a comment and let’s discuss the future of communications in the real estate industry.

Navigating through Stormy Weather

Times are interesting in the real estate business. As whole, we’re in much better shape than five or six years ago on both the residential and commercial sides of the industry. Though we are not seeing tremendous growth on the financial side of our businesses, real estate activity is good and, broadly speaking, we are holding our own as a rising tide has lifted us all.

Meanwhile, strong winds are brewing that will buffet us in the coming months. In less than 60 days, we will all be dealing with the day-to-day implementation of the new TILA-RESPA rule. While lenders will be hit hardest by the new regulatory requirements, title and settlement companies also will be scrambling to find their way in our new closing environment.

As we batten down the hatches for the incoming regulatory storm, in the title industry we are also facing self-imposed pressure as we continue to implement an industry-wide Best Practices initiative. Together, these twin challenges will have a major effect on how we do business. The headwinds we are facing come close to creating a perfect storm of external and internal pressure that will make for a daunting fall and winter.

We’ll get through it, no doubt, and emerge in 2016 as stronger businesses that offer even greater protection to home buyers and commercial real estate investors. As the proverb goes, “We cannot direct the wind, but we can adjust our sails.”

While we do just that, bear with us as we navigate through some rough weather.

Questions? Comments?

Frank

Two Months to Go: TRID Adjustments Needed

In June, something very surprising happened in the our industry when the Consumer Financial Protection Bureau proposed delaying by two months implementation of the New TILA-RESPA Integrated Disclosure (TRID) rule. If the original date had held firm we would already be working under the new rule.

The delay from the original Aug. 1 date is welcome because it gives us all additional time to prepare. It could also turn out to be a real blessing in disguise if the CFPB takes action on several vital fronts before the new Oct 3 deadline.

First, the real estate industry has been clamoring for a hold-harmless period of up to six months once the new rule goes live. The penalties for inadvertent mistakes made by lenders and title and settlement companies are very steep, and once TRID takes effect we will all be prone to mistakes as this huge changeover occurs.

CFPB also should use this time to fix the inaccurate disclosure of title insurance premiums for consumers. State law and regulation in the majority of the country dictates that consumers must pay title insurance rates that are different than how the CFPB requires the industry to inaccurately disclose these fees. Every homebuyer should be well-informed about the accurate costs of homeownership — including what they pay for each service during the real estate closing process.

Lastly, CFPB now has more time to act upon an important flaw in the wording of TRID documentation by removing the “optional” label attached to title insurance. Telling a consumer that owner’s title insurance is “optional” will mean that homebuyers may be dissuaded from purchasing the same protection that lenders receive from a title insurance policy.

I believe the new TRID rule will benefit consumers and industry alike. In urging government officials to make the vital adjustments noted above, those of us in the front lines are making prudent suggestions that clearly will benefit the settlement process and the consumers who rely on us to make their home-buying dreams come true.

What do you think?

2nd-Half of 2015

In the News    

Presented by Prairie Title         

Commentary by Frank Pellegrini, Prairie Title CEO  

Are millenials ready to jump into the real estate market? Some interesting research shows they just might be. According to a realtor.com ® consumer behavior survey of more than 12,000 respondents, millennials are primed to gain market share in the second half of 2015 as more take the plunge into home ownership.

“This year, we’re seeing an increase in millennial demand that points to a strengthening first-time buyer demographic,” said Jonathan Smoke, realtor.com®'s chief economist. “As the economy continues to grow over the next few years, we can expect first-timers to return to a healthy level of 40 percent of the market.”

Last week, DS News published an article noting that the share of first-time purchasers (many of them millenials) was up through the second quarter, noting: “The first-time buyer share in April, May, and June was launched to new highs, supported by improvements in the labor market, riskier mortgage lending, and continuing low mortgage rates.”

That’s two pieces of good news as we move into the second half of 2015. There are many other hopeful signs and I believe the arrow is pointing up. I’m particularly encouraged by the commentary of Lawrence Yun, NAR’s widely respected chief economist. His material is always worth reading.

In a recent column, Yun rejects the idea of an imminent housing bubble. “After running various scenarios, I expect home prices to rise continuously as long as mortgage rates remain under 6 percent….Going forward, keep in mind that robust job creation and meaningful increases in income levels will help propel home prices. For now, though, no bubble or impending crash is in sight.”

Need more encouragement? Take a look at these numbers from NAR’s second half forecast:

· Residential construction spending increased 6 percent in the first quarter. Housing starts are rising and therefore this component will pick up even at a faster pace in the second half.
Builders will construct more homes. By 1.1 million in 2015 and 1.4 million in 2016.
All in all, existing and new home sales will be rising. Combined, there will be 5.8 million home sales in 2015, up 7 percent from last year.

Though we’ll all be wrestling with implementation of the new TRID rule the last quarter of the year, I feel very good about the direction real estate is headed as we move into 2015’s last five months.

Do you agree? Let’s keep the discussion going. Call or email me, or write a comment.

Other stories we’re following:

Builder Confidence is Rising.                                

Managing Unintended TRID Consequences.                
Buying Two Title Policies is essential.

Home Prices Reach all-time High.