Providing Preliminary Numbers to Lenders

We are receiving a lot of questions from Members about providing preliminary numbers to lenders. This can come up in a myriad of situations and there is no one "solution" or set of rules for you to follow but I thought it would be beneficial to share some ideas with you on what we are seeing out there.

DISCLAIMER #1: I have to include the typical lawyer disclaimer. The statements below are recommendations, general guidelines, guesses and random thoughts. Until we all get used to the new system (providing Loan Estimates and Closing Disclosures to borrowers much earlier in the process), lenders and settlement agents will come up with different ways to get the job done. So please accept these comments for what they are... and what they are NOT.

DISCLAIMER #2: This email is focused on providing preliminary numbers to the lender so that they can prepare the Loan Estimate and is not about providing "final" numbers for the Closing Disclosure.

So here we go. These are the two main issues we have seen come up:

• What format do you use to send numbers back to the lender?
• What do we mean by "numbers"?

Some lenders are still in the habit of requesting a "preliminary HUD." Do you take this literally and send them a HUD? Do you put the numbers on a Closing Disclosure? Do you send it in some other, perhaps simpler, form?

• Our recommendation is that you send the numbers on a Closing Disclosure. This will begin to get everyone in the habit of using the new forms and also provides you with an opportunity to talk with the lender about the proper placement of fees and costs, the proper "labeling" of those fees and costs and the bizarre way in which title premiums have to be disclosed in Florida.
• Other choices:
  • HUD-1 (we discourage this because the use of this statement is now very limited and it should not be used in TRID regulated closings).
  • ALTA Closing Statement or other "simplified" closing statement. The "downside" here is that the lender may not know where to put the fees and costs on the Loan Estimate.
  • A simple listing on a piece of paper of your fees and other charges (same downside as using the ALTA Closing Statement).
• Portals: If the lender uses a portal, then you are likely to be sending numbers through the portal. These are an unknown right now and we aren't getting any real life experiences from members about use of the portals.

What "numbers" are you expected to send to the lender?

That depends. Here are a couple scenarios that could play out:

• Scenario #1: The lender needs to prepare and deliver the Loan Estimate and they have to do it NOW. You don't have the contract and you have not been asked to serve as the settlement agent. Here you don't have any idea what closing costs the contract obligates the buyer to pay. Perhaps you have a relationship with the lender and they know they can count on you to help them complete the Loan Estimate.
  • SOLUTION: All the lender can expect from you are the title premium charges based on the sales price, the loan amount and endorsements requested. It is my opinion that other charges that might be incurred by the buyer are beyond your responsibility in this situation.
• Scenario #2: The lender needs to prepare the Loan Estimate ASAP and you already have the contract in your office.
  • It's possible that you have already collected some information about costs (taxes, HOA or Condo assessments). In this case, you are able to provide title premiums and some of the other costs. The lender can make the decision about whether to include all of these on the Loan Estimate.
  • If the seller is obligated to pay for the owner's policy, then you should send numbers to the lender and show the appropriate credit to the buyer for the seller's share of the title premiums. I would show this as a CREDIT. The lender will then decide how this "credit" is given to the buyer. The lender may leave it as a credit but they might want to allocate the cost of the lender's policy between buyer and seller and then collect any balance due from the seller "down below" on the line for "owner's title insurance."

I hope this is helpful. Take comfort in the fact that there is no "right" answer at this point nor is there any standard protocol in the lender industry. You have to do what makes the most sense to you in your particular situation. It is SO helpful for you to share your experiences with us so that we can get a picture of what is happening amongst all members. This will help us in our interaction with lenders and with regulators. So please send your approach to the new process either to me directly or to the CFPB Hotline (cfpbfaq@thefund.com).

On a related note: I am going to send a short survey out in a few weeks to collect information about all of your experiences with TRID so far. Please respond when you receive it.

Thank you for your support of The Fund!