The overhaul of disclosure forms TRID brought the settlement world represents a major shift in how the industry creates closing documents and transfers that data from the lender to the settlement agent to the borrower. The Uniform Closing Dataset (UCD) regulation was introduced by GSEs, Freddie Mac and Fannie Mae -- like a Rosetta stone -- to ensure the information gathered on transactions of government secured single-family loans are accurate, efficient, and ultimately improve quality control of data.
Specifically, the UCD tracks what the current owner was selling and at what price; what the buyer agreed to purchase in terms of sale price and third-party fees; whether or not the final transaction was aligned with what the buyer agreed to; the location of the closing statement; and how well the closing statement reflects what is found on the loan estimate and closing disclosure.
While regulations of any kind are often viewed with, at best, skepticism regarding their usefulness and, at worse, with disdain for the disruption in business as usual, this regulation has three major benefits for the real estate industry: greater collaboration among industry professionals often siloed by competition, standardization of processes, and greater use of automation and data technology.
Collaboration between lenders and title agents
Four years after the initial implementation of the TRID rule, lenders still continue to struggle with quality control issues complying with Closing Disclosure requirements according to a survey from Mortgage MetaSource.
Of the top ten quality control issues, four are directly related to the Closing Disclosure requirements and defective or missing settlement service provider lists. These four problems are all impacted by the role of title and settlement agents and title insurance in the closing process.
The top 10 quality control issues for lenders include:
- Closing Disclosure - Tolerance Violation
- Closing Disclosure - Calculating Cash to Close
- Intent to Proceed - Missing or Defective
- Closing Disclosure - Timing Violation
- Incorrect Income Calculation
- Loan Estimate - Timing Violation
- Insufficient Assets to Close
- Verification of Employment - Missing or Defective
- Settlement Service Provider List - Missing or Defective
- Security Instrument - Missing or Defective
The UCD regulation means that lenders are being held to a higher standard than ever before, which in turn, means that they will be re-evaluating their business partners with these new standards in mind. Wells Fargo sent this memo to settlement agents explaining how the new regulations have changed their expectations.
Further collaboration between the mortgage industry and the title industry is needed to continue to improve these issues under the CFPB’s regulations. In order to address the second most common quality control issue, H.R. 3987, also known as the TRID Improvement Act, was written with input from multiple industry players.
Last year, the house approved the TRID Improvement Act that was supported by organizations like the American Land Title Association and the Mortgage Bankers Association. This act was written to help tailor the way in which the costs are calculated for discounted owner’s title insurance policies when bought with a lender’s policy. This change would more accurately reflect the way in which actual premiums are charged in most states. It allows title insurance companies to disclose available discounts and accurate title insurance premiums to consumers.
While the change may have been painful for some in the title industry and especially for lenders, promoting better data integration and collaboration between business partners is a win for everyone.
Standardization of shared data
Analysis of 90,000 HUD-1’s showed that the naming conventions for a fee, credit, or charge varied wildly from one form prepared by an agent to the next. Something as common as an appraisal fee had 12 variations due to abbreviations or misspellings and the inclusion or exclusion of the payee names.
The Mortgage Industry Standards Maintenance Organization or MISMO is a non-profit organization that develops technology standards for residential and commercial property transactions. To cut down on the tedious, manual and error-prone process of transcribing and rekeying third-party reports into mortgage originator’s internal systems, the organization provides an XML framework for two business-related firms, like title companies and lenders, to streamline shared data reported on the Loan Estimate Form. MISMO doesn’t dictate what sort of software to use, instead it dictates how to format data sent to another party. This allows all parties to develop, run and maintain their own platforms while maintaining uniform efficiency.
The UCD specification uses the framework of MISMO to format the transfer of data on the Closing Disclosure. Adopting MISMO standards means there are consistent definitions and interpretation of the data according to CFPB regulation. Using standardized names for common fees and charges that are accessible to all industry professionals makes it easier for borrowers to compare closing disclosures. Additionally, the UCD regulation helps professionals by:
- Reducing errors between settlement agents and lenders as rekeying of data is eliminated.
- Review and approval time to get the clear to close is reduced.
- Closing delays due to inaccurate data and re-disclosures are reduced.
- Reduction in administrative costs
Overall, the standardization of naming and sharing data between lenders, settlement service providers, and other vendors makes closing in a timely fashion more attainable.
This is perhaps one of the greatest benefits so far of the regulation as the real estate industry is notorious for creating colloquial terminology that doesn’t always translate well when doing business in another state. As we move to more digital closings involving parties from around the world, standardization and creating a shared lexicon to describe the data needed to transfer property is imperative.
Automation and data technology
Another benefit of the UCD is that it helps to combat human error by requiring an uninterrupted flow of data between settlement agents and lenders.
Clerical errors are a huge issue for the real estate industry. In fact clerical errors, human error as a result of rekeying important personal and sensitive data regarding the ownership of real property is one of the main reasons that title insurance is needed to protect a land owner’s interest.
Looking toward ways to improve automation and data technology should be a priority for every title agency, law firm, and real estate professional organization. Closing software that is UCD compliant is a necessity. Secure cloud-based closing software that makes it easier for your team to close deals without being tethered to antiquated installed software on a desktop computer is a plus.
One simple solution to combat the ninth quality control issue among lenders, missing or defective settlement service provider list, is the ALTA registry. This creates a single source of accurate data for title agent identities and their locations. By assigning a unique ALTA ID to each agent down to the individual branch, this database is the ideal solution to the problem of same name, different agent. In addition to providing a tool for lenders to confirm identity, the registry also acts as a secure way to access correct contact information. A vital part of combatting wire fraud.
At the end of the day, these regulations that are a result of the TRID rule are meant to make buying a home easier for consumers. The goal is noble, but title industry experts will need to continue to collaborate with the mortgage industry and government officials to ensure that the standardization process creates less and not more confusion for buyers. These changes also provide a unique opportunity for title companies and settlement agents to find better technology to not only meet but exceed the new requirements and expectations of their lenders and the end consumer. This focus on leveraging technology to improve how data is handled will simplify the closing process for everyone involved.