Errors in good-faith estimates can be costly for the lender because of the need to make payments when there are tolerance violations. Meanwhile, consumers are looking for the lowest costs possible when closing their loans. There is now a partnership that will bring both of those things to the table for lenders.
LendingQB, a provider of Web-based loan origination technology, is teaming up with FirstClose Title to provide its users both with lower closing costs and guaranteed GFE data for the LOS users.
Bihn Dang, the managing partner of LendingQB, said there are two benefits to the tie up. A third party is providing the information that insures the accuracy of the GFE.
Because the data are insured, the lender can delegate the issuance of the disclosures to the originators without worrying about compliance and tolerance problems. This means the lender's personnel and resources are not tied up with having to deal with this issue, he said.
The other thing about this deal, explained Dang, is that FirstClose, which is a title agency, uses a best-execution model for arranging title policies from underwriters and product. It lowers closing costs for the borrower, making the originator more competitive.
This is the first time LendingQB has created this type of arrangement. The issues regarding having accurate title fees in the GFE is not a problem its clients complain about, Dang said, but it is a problem that exists in the marketplace.
Normally, lenders have to obtain the title fee quotes manually, and then enter the amount manually into the GFE. “Because it is a manual process, a lot of times, they don't trust junior employees to do that for them, because they can make mistakes and when a mistake occurs, they are the one eating it,” he noted.
Automating the process eliminates the possibility of mistakes occurring.
Automatically populating the information into the GFE also saves lenders between 15 minutes and 30 minutes per loan.
Cynthia Waterman, president and chief executive of FirstClose said her goal was to create a “consumer-centric pricing model.” She also made the point that the venture helps lenders avoid having to pay for tolerance mistakes while at the same time helping the borrower to save money.
As for FirstClose's being able to do this as an agency, Waterman said, “A product like this could never be offered by a direct underwriter.”
Her agency is able to offer consumer every potential discount for a title insurance policy available.
To ease the process for lenders, ClosingCorp, La Jolla, Calif., offers what it calls the SmartGFE Service. Recently the company has made that service available to credit unions that originate mortgage loans.
Cathy Blaszyk, vice president of lender services for ClosingCorp, said she had seen something from CFPB which talks about the agency holding lenders to “an even higher standard of accuracy, especially as it related to their affiliated providers.” Fees from these affiliated business arrangements would need to be listed virtually accurate on disclosures, instead of a 10% tolerance.
The SmartGFE Calculator is a pricing and compliance tool that is posted on a title company's website and used by mortgage lenders to instantly generate title and settlement rates, as well as accurate recording fee and transfer tax costs. It provides geocoded rates to fill in Blocks 3 through 8 on the GFE.
Even keeping a trail of what caused fee changes from the initial GFE can be difficult for lenders to manage. They need controls in place to record when and why there was a different value pulled, Blaszyk said. Changes need to be properly documented to show regulatory examiners why those changes take place.
Although the current version of the GFE has been available for over two years, there are reports of lenders having workflow issues. This results in lenders having to pay out money to fix tolerance errors, she said, noting there are those relying on templates and tables for the fee data that are put on the GFE.
The consumer is not served well because the information is not accurate and the lender wastes manpower on the manual process. “You'd be amazed at how much inefficiency still takes place today in how lenders are managing the fee data,” Blaszyk said.
Another problem is that different lenders use different workflow processes. Some have back office disclosure systems which limits human interaction. Others allow the loan officer to work with the local providers he or she has relationships with, in other words there is a high level of interaction. She said ClosingCorp's system supports either extreme.
Christie Huff, vice president of marketing at ClosingCorp, said the company's database includes rate information from nearly 10,000 services providers, including transfer fees and recording tax data.
The data are geocoded, which means the proper jurisdiction for tax purposes is used. If the location is not correct, the data could be significantly off and an error will result, she said.
“So when you look at the whole GFE development from the lender's perspective, the data is key and if you have inaccurate data at the start then your information is going to be wrong and you're setting yourself up for tolerance violations,” said Huff.
It is at the point where lenders have to outsource the information pull for their GFE process. Blaszyk said lenders would rather concentrate on mortgage originations and not have to manage third party fees.
Blocks 3 through 8 “are data elements that are very difficult for most companies to maintain,” Huff said, adding that is ClosingCorp's value proposition.
“The whole goal of this is to benefit the consumer. The consumer is entitled to accuracy and precise data. Nobody wants surprises and that is what we are trying to protect the consumer from,” Blaszyk said.
And the cures could add up to thousands of dollars on a single file, so systems need to be in place to prevent that from happening, she said.
From the lender's perspective, Total Mortgage Services president John Walsh said it has developed a close relationship with the Penner Law Firm to help with GFE compliance and quote accuracy.
TMS has been “very clean and consistent” on making sure its GFE quotes do not exceed the tolerances, with Walsh adding, “We took it very seriously from the beginning.”
Walsh noted that there are inconsistencies throughout the mortgage industry on what is reported in which block on the GFE, which complicates compliance.
TMS has also become a wholesaler and one of the things it notices from the GFEs submitted by its mortgage brokers is that most of the time they are incorrect. Some brokers don't understand what is necessary for a correct GFE. So it has to go back to those brokers to make sure they were right.
If TMS gets an incorrect GFE, it has to be sent back to the broker for correction and redisclosure, which in turn adds time to underwrite the loan and even affects things like the ability to lock the rate.
Walsh thinks that if originators relied on their vendors more to ensure compliance, it would be make things better. Even after two years, people are still struggling with how to properly fill out the form, he said. “It still seems to be quite the work in process.”
Having proper systems in place is what helps TMS to remain in compliance.
