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Title Professionals, Lenders Must Prepare for Industry Changes

TRID may require additional work and resources, but it should offer a much-needed opportunity for improvement.

By Kevin Wall and John Hollenbeck

Following the Consumer Financial Protection Bureau’s (CFPB) announcement that its August 1 deadline will stand, lenders and mortgage industry service providers are now scrambling to prepare for the day the TILA-RESPA Integrated Disclosure rule (TRID) goes into effect. But it’s not all headache and hassle with TRID. In fact, the new rule may actually provide a welcome opportunity for many lenders, giving them the chance to better serve digitally savvy homebuyers, as well as simplify what has historically been an overcomplicated process. The key to seeing success under TRID, however, will lie in lenders’ forethought and preparation. What problems could occur? How can those be prevented? Kevin Wall and John Hollenbeck, executives at First American, weigh in.

In TRID We Trust

New Rule Could Restore Faith in Mortgage Industry, Increase Collaboration With Title Professionals

By Kevin Wall

From pre-application to closing, TRID promises to upend the mortgage process as we know it. It will change the pace of document preparation and delivery, and it has the potential to redefine the rush-to-close tradition on the whole. But while TRID is clearly a huge undertaking for all parties involved, it also marks the beginning of a much-needed change in the industry—one that consumers and homebuyers have been yearning for for years.

The millennial generation in particular should benefit from TRID’s changes, as these homebuyers are often discouraged by the daunting mortgage processes and the intimidating stacks of 20th-century paper that it produces. These buyers are so accustomed to information-rich, mobile-friendly, easy user experiences in their daily lives that they’ve come to expect it with all business transactions, too.

TRID presents an opportunity to provide just that. Once enacted, TRID will help simplify the unnecessarily complex mortgage process, while also reestablishing trust between consumers and the entire real estate industry through increased transparency and communication.

Put simply, TRID is our opportunity to start “walking the walk” when it comes to streamlining the path to homeownership.

Changing the Fundamentals

In addition to consolidating several documents into two consumer-friendly formats—the new Loan Estimate and Closing Disclosure—TRID also calls for a shift in responsibility for the preparation and delivery of these forms. Instead of falling on the shoulders of the title and settlement provider, the burden will now be on the mortgage lender to ensure the content of these forms is complete and accurate when it reaches consumers’ hands, and all within a very short window. The settlement agent will be responsible for providing the seller’s closing disclosure.

This stands to fundamentally change the pace of work on the mortgage closing process. Every loan closing will now require a front-loaded effort to keep it on track, or else risk violating the strict three-day delivery rule. For example, this might require title professionals to collect and submit fees an unheard-of 10 days before closing.

For most lenders, this will require significant changes to their processes and workflow, as well as upgrades to technology systems. Unfortunately, many do not have the depth of resources to focus on adjusting their internal systems and processes by August 1, nor can they ensure any business partners, such as mortgage brokers, are up to speed on the go-forward plan.

The fact of the matter is, while TRID might look like a huge inconvenience on the surface, it’s also an opportunity for lenders to simplify operations and strengthen relationships with key service providers. For all parties involved, those who embrace these opportunities can turn TRID to their competitive advantage in the marketplace.

Collaboration Is the Only Way

Speaking from a service-provider perspective, preparing for TRID needs to be an exercise in collaboration. Compliance is a shared effort. We must demonstrate leadership to help our lender customers prepare for TRID by equipping them with the knowledge to address workflow challenges, supporting them with multiple integration and technology solutions, and providing them educational and training opportunities to explain the industry’s view of the upcoming changes.

Service providers must dedicate tremendous resources to train their internal teams so they can, in turn, share their knowledge with their lender customers. A proactive approach is vital to this process. Providers must reach out to lenders and start conversations about technology and operational needs that are in the pipeline. At First American Mortgage Solutions, we’ve built our own software features to produce a closing disclosure as backup for lenders lacking a fully automated solution by August 1.

Whether or not intentionally, the CFPB has set the stage for our industry to move closer to a fully electronic mortgage, which would better align with where our society and technology advances have already taken us. This won’t happen overnight, but each step we take to move in that direction will only help improve the consumer experience. As an industry, we must be able to reflect our target customers’ preferences, including the next generation of homebuyers and mortgage professionals. Millennials’ comfort with technology makes for a more informed consumer group and a more flexible workforce.

Unquestionably, the impact of TRID will be both disruptive and reconstructive, toppling some sacred cows and inviting all of us to rethink the way we’ve always done things. What’s important to keep in mind is that by increasing transparency and communication, we’re building accountability and trust with consumers. That’s a really good and necessary step in restoring both the housing market and the American dream of homeownership.

TRID and Its Impact on Title/Settlement Professionals

Three Issues That Must Be Addressed Before August 1

By John Hollenbeck

Lenders aren’t the only ones who need to prepare for TRID’s August 1 implementation date. In fact, title professionals and settlement agents have much work to do, too. In particular, there are a few easily overlooked issues that these professionals will need to address before TRID goes into full effect. Let’s take a look at three of them now.

Issue No. 1 

Lenders still need settlement agents and so do home buyers and sellers.

The largest lenders—and many mid-sized ones as well—have announced their decision to assume complete control of the preparation and delivery of the borrower’s Closing Disclosure (CD) form. From a lender’s perspective, it makes perfect sense. They are responsible for the content and timely delivery of the CD and for maintaining the evidence of compliance.

Lenders still need settlement agents, however, and so do homebuyers and sellers. In many ways, the relationship between lenders and settlement agents will need to be more tightly coordinated than ever before.

For example, if the lender produces every version of the CD, lenders must be ready to make changes as the settlement agent makes changes at or near closing. Likewise, settlement agents cannot make last-minute changes at the closing table without the lender’s involvement. Last-minute changes involving the borrower must be communicated to the lender, and the lender, if it has decided to do so as a matter of company policy, must then produce a new CD.

Issue No. 2 

Title and Settlement Professionals will still need to issue a Settlement Statement

While the new borrower’s CD is frequently referred to as a replacement for the HUD-1 Settlement Statement, it’s important that title and settlement professionals realize the CD is not, in fact, a settlement statement. Lenders are obligated to issue the CD, and they are liable for its content. The CD can be thought of a lender’s pre-closing disclosure, but it is not a representation of what actually happened at closing.

But, homebuyers and sellers are entitled to and will expect to receive an accounting statement from their settlement agent. What happened to all of the money? Who was charged for what? In fact, many states’ statutes require settlement agents to issue a statement, and these statutes will remain on the books even once TRID is in effect. With that in mind, title and settlement professionals will wisely conclude they need to continue to issue settlement statements for the foreseeable future.

Look for the American Land Title Association to publish a standard form of settlement statement later this year. This form will be voluntary, of course, but will likely be adopted on a widespread basis. Some lenders may even require its use.

Issue No. 3

Settlement agents must vigorously work files early.

Traditionally, title and settlement professionals provided the lender with details on charges for a real estate transaction, like payoff demands, HOA demands, tax information, etc., near the time of closing. Under TRID, lenders will need this information up to two weeks before closing, which is a complete reversal in the timing of the deliverables.

Let’s consider how this plays out. The lender must deliver the CD at least three days prior to “consummation,” which can be loosely thought of as three days prior to signing. In the early days of implementation, many, if not most, lenders will deliver the CD via the U.S. mail. This adds another three days to the timeline because the TRID rule provides for “deemed delivery” three days after mailing. If it’s a refinance, add another three days for right of rescission. And, in escrow states, add a day or two since signing occurs prior to closing.

Lenders will still compete fiercely on closing loans on time under TRID. That won’t change. So, given the requirements, it’s easy to see and fair to expect that lenders will likely look to mail the CD to the buyer 10 days prior to closing.

In order for this to occur, lenders will need the settlement agent’s figures early, much earlier than is generally available today. Once an order is placed, settlement agents must have their processes organized so that, at the earliest practical time, they have accumulated all of the information needed to close and can input the information into their production software. No longer will settlement agents be able to schedule these tasks at the tail end of the closing process.

The bottom line: settlement agents must vigorously work files early.

Moving Toward TRID

Preparing for TRID requires all hands on deck. But as long as lenders, title professionals, and settlement agents are prepared and diligent, the new rule should provide a much-needed opportunity for the mortgage industry.

Editor's note: This select print feature appeared in the May 2015 edition of MReport magazine.

About Author: Kevin Wall

Kevin Wall is the president of First American Mortgage Solutions, a primary provider of collaborative and customizable data, analytic, valuation, title, settlement, risk mitigation, and quality control solutions for loan origination and servicing.

About Author: John Hollenbeck

John Hollenbeck is EVP of First American Title Insurance Company and provides corporate oversight of First American's home office underwriting department.
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