Two RESPA experts, Marx Sterbcow, managing attorney at Sterbcow Law Group LLC, and former Consumer Financial Protection Bureau (CFPB) attorney Richard Horn, founding attorney of Richard Horn Legal, PLLC, teamed up to create a list of 10 common TRID violations, which may be reasons secondary market investors are rejecting and refusing to purchase loans from banks and lenders.
In making the list, the two agreed that one of the main reasons for these rejections stems from worries in the secondary market about the consequences of selling the loan in the future.
“Some in the secondary market appear to be concerned whether the next investor who buys the loan from them will refuse to purchase the loan or purchase the loan at a discounted price if they need to sell but can’t due to the unknown legal liability risks,” Sterbcow wrote, adding, “The downstream investor risk is trickling back upstream.” Horn stated that future repurchase risk is also a significant concern, and added that analysis of the liability for these violations is complex and may vary between investors.
Here is the list they came up with:
1. Loan Estimate (LE) and Closing Disclosure (CD) Issue Dates. LEs and CDs in the file have the same issue date, indicating they were issued on the same day in violation of the rule.
2. Title Fees – The title fees do not have “Title - ” in the description (i.e., “Title - Settlement Agent Fee”). There have even been some issues with not having a space in between “Title” and the hyphen. The regulatory text has a space in the “Title -,” so keep that in mind too.
3. Contact Information Table – All applicable contact information is not included on Page 5 (i.e. real estate agent/broker’s license number is missing). Keep in mind that if the individual contact person is not required to have a license, it is permissible to leave that License ID cell blank. Also, remember, that settlement agents should typically be using the License ID cell for their licenses, not the NMLS ID cell. NMLS ID numbers typically are obtained only by lenders and brokers, so settlement agents typically should not have a reason to put their license number in the NMLS ID cells.
4. Alternative Cash to Close – On refinances using the alternative form, “fuzzy math” to show subordinate financing. The CFPB’s Office of Regulations stated in a webinar that if the alternative CD is used, there is no place to show subordinate financing on the alternative CD, and there is no requirement to do so. Essentially, each transaction will have its own cash-to-close, and the settlement agent has to figure out the “master” cash to close.
5. Settlement Agent File Number – The settlement agent’s “file number” is not included on page 1. The file number is the settlement agent’s file number, “for identification purposes.” Settlement agents can use a number they assign to the file in their own system to identify it, which can contain letters and numbers.
6. Privacy Authorization - The lender/bank sent the loan file to the investor with a copy of an executed third party authorization to release NPPI form, giving Realtor access to borrower’s CD. Investors may find issues with the authorization form.
7. Not Providing the Seller’s CD - The rule requires the settlement agent to provide a CD to the seller, and to provide a copy of it to the lender if the borrower and seller information is provided on separate forms. Many lenders have been reporting that the settlement agents they are dealing with are not providing the seller’s CD, or are providing the HUD-1 or ALTA Settlement Statement instead of it. The HUD-1 or ALTA Settlement Statement cannot replace the CD to the seller. In addition, settlement agents should provide lenders with the most up-to-date information they have for each CD provided to the borrower.
8. Simultaneous Issuance – Full owner’s title premiums on the LE and CD. Lenders are reporting that their settlement agents still do not understand the simultaneous issuance rules, and they are getting estimates that do not comply, causing errors on the LE and CD.
9. Optional - The “(optional)” designation is not being used correctly. It’s not being included for separate insurance, warranty, guarantee, or event-coverage products disclosed under the “Other” category, such as optional owner’s title insurance, credit life insurance, debt suspension coverage, debt cancellation coverage, home warranties, and similar products.
10. Fee Names - The fee names essentially should be the same between the LE and CD. Specifically for settlement agents that did not provide the original estimates for the fees on the LE, when they are selected as the title company/settlement agent, they can use their own fee names, based on the changed circumstance. But from that time, or from the original LE if they provided the fee estimates for that LE, the fee names should be the same, unless there is some other changed circumstance.