Paul Clifford is president of Simplifile and manages all
aspects of Simplifile’s corporate strategy. Recognized as an
e-recording industry pioneer, Clifford frequently presents
at state and national industry trade shows and conferences.
Prior to founding Simplifile, Clifford served as director of
corporate and strategic planning for iLumin Corp., where
he was responsible for researching, modeling and creating
strategic business plans and projects, including an automated mortgage-transaction initiative for Freddie Mac and
Fannie Mae. Reach him at firstname.lastname@example.org.
Real-time collaboration helps relieve issues with seller’s forms
By Paul Clifford
It’s hard to believe that this time last year, the Consumer Financial Protection Bureau’s (CFPB’s) “Know Before You Owe” consumer-disclosurerules, or TRID, had only been in place for a little over
six months. Mortgage originators at that time were
still adjusting to the new Loan Estimate and Closing
Disclosure forms mandated under Know Before You
Owe — especially the requirement to deliver the Closing Disclosure at least three days before loan closing.
Even now, some mortgage originators are still
struggling to find their footing. According to recent
figures from Ellie Mae’s Origination Insight report, time
to close reached 51 days this past January, which was
higher than any month in the previous year.
One factor that continues to introduce confusion,
time and expense into the mortgage closing process
is the frequent need to issue separate buyer and seller
versions of the Closing Disclosure document. These
bifurcated forms are sometimes called the “buyer’s
form” and the “seller’s form.”
Know Before You Owe specifies that both the buyer
and seller must receive a Closing Disclosure with
details of the mortgage transaction. While the seller’s
disclosure may be delivered at any time up to the
closing, the borrower’s disclosure must be delivered
at least three days prior to closing. In many cases, the
lender (or, occasionally, the settlement agent) will generate a single Closing Disclosure document and deliver
it to both the buyer and the seller. This is a combined
buyer/seller Closing Disclosure.
At other times, the settlement agent may have concerns about protecting the seller’s privacy and may
choose to limit how much seller information is disclosed to the buyer. In these instances, a bifurcated
approach may be used, wherein the lender prepares
the buyer’s version of the Closing Disclosure (the
buyer’s form) and the settlement agent prepares the
seller’s version (the seller’s form).
The bifurcated approach is most commonly used
when the seller has liabilities that must be disclosed to
agency investors that are not relevant to the borrower.
Suppose the proceeds of a home sale will be used to
pay off not just the seller’s first mortgage, for instance,
but also a second mortgage as well as an additional
lien. If one of these debts is not properly paid off, the
property could become encumbered. Although title
insurance generally protects lenders against property encumbrance related to title defects, Fannie Mae,
Freddie Mac and other investors require disclosure of
a seller’s liabilities as an additional safeguard before
Settlement agents may choose to produce a separate seller’s form for any reason, but concerns related
to disclosure of private information, such as seller
liabilities or the seller’s mailing address, are most
common. Certain states and local municipalities
(California is one example) also have strict privacy
laws limiting the kinds of consumer information that
can be shared without written consent, which may
motivate settlement agents in these regions to prefer
a bifurcated approach.
The Know Before You Owe consumer-disclosure rules
as written permit this bifurcated approach to the
Closing Disclosure — with some caveats. The buyer and
seller’s forms must show identical fees and use the
same fee names. Additionally, they must bear the
same issue date — even if they are not physically delivered to their respective recipients on the same date.
This is because mortgage regulations define “issue
date” as the date the disclosure is delivered to the
consumer. Because most organizations interpret
“consumer” to mean the buyer, the date of issuance
to the buyer is used on both versions of a bifurcated
Closing Disclosure. Given the CFPB’s tricky rules around
calculating the three-business-day waiting period —
not to mention the requirement to issue a new
Closing Disclosure if changes occur — it’s easy to see
how a bifurcated approach increases the probability
of compliance missteps, which is a serious concern
for mortgage originators.
True, it may be the settlement agent who typically
produces the seller’s form, but the CFPB holds lenders accountable for ensuring the form’s accuracy and
retaining the loan file. Additionally, the CFPB mandates that lenders are responsible for ensuring the
regulatory compliance of third-party service providers — including settlement agents.
Further complicating the matter, settlement agents
sometimes choose to safeguard sensitive seller information by simply not conveying it to lenders until
after closing. Since lenders can’t resell loans to Fannie
Mae or Freddie Mac without disclosing seller liabilities,
collecting this information from the settlement agent
becomes an extra item on the post-closing checklist.
This is bad news for lenders, who know all too well
that post-close work is an unprofitable and time-consuming endeavor.
A way forward
A better approach involves promoting meaningful
collaboration between loan originators and settlement
agents using a platform that supports real-time communication and automated notifications. Ideally, a
determination should be made upfront as to whether
a combined or bifurcated Closing Disclosure document will be issued. Once that determination is made,
the parties should work together closely to create both
forms using identical fees and fee names.
This process is made much easier if the forms are
generated by the same document engine or platform.
The Consumer Financial Protection Bureau’s Know
Before You Owe rules are designed to help consumers understand their loan options, shop for
mortgages that are best for them, and avoid costly
surprises at the loan-closing table. The consumer-disclosure rules, also known as TRID, replaced
four disclosure forms with two new ones — the
Loan Estimate and the Closing Disclosure. The
new forms are designed to be easier to understand and easier to use. The rules also require that
the borrower gets three business days to review
the Closing Disclosure and ask questions before
closing on a mortgage.
At a Glance
Know Before You Owe
Continued on Page 68 >>
Source: Consumer Financial Protection Bureau