The real estate finance and real estate sales industries have come to understand the benefits of deeper communication and collaboration to close a transaction. Changes mandated by the Consumer Finance Protection Bureau, specifically the introduction of the TILA/RESPA Integrated Disclosure rule, have dictated a path to increase transparency.
In June, the National Association of Realtors reached out to the CFPB identifying certain issues experienced by its members surrounding TRID.
Specifically, prior to the rule it was common practice for Realtors to aid clients by answering questions about the HUD-1. Since implementing the rule, real estate professionals have experienced problems getting access to the Closing Disclosure.
Clarifying the rule to state it is acceptable to share the CD with third parties when the lender receives consent from the borrower, would address this problem.
On July 29, the bureau issued changes it is proposing in response to NAR’s request regarding privacy and sharing information. This clarification allows creditors and settlement agents to share the CD with consumers, sellers, and their agents, reducing risk to third parties; Realtors, lenders and investors.
It is apparent these two industries realize the benefit of having transparency in document review. Document preparation companies have created portals to share, edit and change documents, real-time chat and messaging to manage changes in real time between lenders and settlement agencies. The obvious next step is to invite the real estate industry into these collaborative portals.
It now seems appropriate to look beyond their own verticals when it comes to traditional data capture and delivery. These two industries need to leverage the efficiencies gained through aggregation and transparency of sharing data, removing the ‘white noise’ which has been embedded in the process for the last 40 years.
All of the roadblocks to a successful ‘e’ process have been removed, with the exception of a well-defined end-to-end data migration solution.
The missing link is migrating data from the Realtors’ purchaser/property database into the lenders Loan Origination System electronically, eliminating rekeying information to avoid comprising data integrity and enhancing quality control.
Not including fees, commissions or taxes, there are approximately 78 data elements either shared by or specific to the Loan Application (1003), Loan Estimate and Closing Disclosure. These elements are captured in the Residential Purchase and Sale (POS) Agreement completed by the Realtor. These data elements are also in the Uniform Closing Dataset, used by lenders to complete and deliver the loan to the investor.
Introduction of technology which provides a well-choreographed, secure, user friendly solution for the Realtor, lender and borrower is the last barrier to a seamless transfer of loan data from home purchase to investor delivery.
It makes sense, automated data transfer of the purchase and sale information aligns with all the other data feeds, (credit, verifications, compliance checks, etc.) necessary to complete the loan application which are sent electronically to the lender, this is truly the last link.
Persistent historical operational challenges have consistently been the nemeses to the evangelicals of ‘e’. Those challenges have been:
- Lack of acceptance or understanding of ‘e’ work streams.
- Inability to pursue or understand end to end solutions outside of established verticals.
- Proprietary solutions presented data and process constraints.
- Constant priority changes trumped implementation of ‘e’ strategies.
Recent Industry pressures which make this end-to-end solution feasible.
- CFBP will mandate ‘e’ process, end to end.
- CFPB approved ‘e’ closing as a loan processing/closing mechanism.
- Increased demand for industry/process/consumer transparency.
- Enhance transparency of the current home purchase, loan origination and delivery processes
Clearly today’s environment lends itself to establishing a better handshake between these two aligned industries.
Seamlessly integrating Realtor purchaser/property data into the lenders Loan Origination System will return a quick investment. Both parties will realize favorable outcomes from implementing a strategy of shared data.
The benefits will not only improve efficiencies to the work stream, but will clearly demonstrate that deeper collaboration between the industries is benefiting the borrower and the process.
Integrating Realtor purchaser/property data would be a proactive QC solution aligning with investor and regulatory requirements, enhancing lender and investor confidence that the data is accurate and secure from the inception of the transaction.
This addresses NAR concerns over TRID-related loan defects, while mitigating lender exposure to buybacks. It would curtail latent transfer of information and compress timelines. Resource intensive review/rework would be eliminated.
Taken individually, these components make work-stream sense, when aggregated they drive down the cost of production. Further integration removes a weak link which potentially could open an avenue for fraud, and lastly it discontinues memorialization of an inefficient process.
Prioritization, lack of understanding, and maintaining a proprietary mindset are the roadblocks to implementation of shared data work streams. This continues the culture of acknowledging, outdated processes exist and not obsoleting them until change is mandated.
Application of shared data shouldn’t be resource, time or capital intensive. The real estate finance industry has developed a data schema which has been in place for a number of years. Lender Data is managed in a standard nonproprietary format. The newest version of MISMO, (v3.3) will map to the Uniform Closing Dataset, which is required for loan deliveries second quarter 2017.
Technology won’t get in the way of the solution. Creating a map, developing an interface and delivery channel would require a modest investment, when existing tools and processes are leveraged.
The push by the NAR to gain clarity on rules set in place by the introduction of TRID, puts that organization in a unique position to kick start this collaboration effort. Obviously the NAR has shown it is invested to get this right and improve their clients’ experience, as well as mitigate risk and expense to the lender and investor.
The Realtors are at the inception of the purchase transaction, they are the first point of contact and remain through the consummation of the transaction. Both parties agree that accuracy and timeliness are paramount to successful closure of the transaction fostering long-term relationships between all involved.
Opportunities present themselves to remove the last piece of friction between the real estate sales and finance industries. Consider the following. In June 2016 total existing and new home sales, (completed transactions that include single-family homes, townhomes, condominiums and co-ops), were 5.530MM and 551MM respectively. In March, cash sales accounted for 33 percent of total home sales, and that trend continues to decline. This leaves a pool of transactions which require financing at roughly 3.728MM sales.
There are nearly 4 million opportunities to enhance the experience of the purchaser, while further mitigating risk for Realtors, Lenders and Investors Consider the revenue streams which can be captured in the value of marketing the shared data to partners, opportunities easily realized. Delaying implementation to dispatch a point of sale data delivery solution will impact the cost of those opportunities. The delay will dilute revenue streams and needlessly spend goodwill as it comes in the crosshairs of the regulators when again, solution ‘priorities’, become reaction to the obvious.