Post-TRID Challenges, Indemnification Clauses, and Vendor Management

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1 Anthony Sharett, Partner Post-TRID Challenges, Indemnification Clauses, and Vendor Management The materials contained herein are presented for informational purposes only and are not intended to constitute legal advice.

2 BakerHostetler FinServ Team Over 110 lawyers practicing in financial services across 14 offices Practice in the following areas: Litigation Regulatory/Licensing/Compliance Restructuring Real Estate Financial Technology 2

3 BakerHostetler FinServ Team Represent Title companies Banks Non-bank lenders Insurance companies Specialty financing companies Auto lenders Credit unions 3

4 BakerHostetler FinServ Team 4

5 Overview Post-TRID Status Update Settlement Service Protections Vendor Management Matters 5

6 TILA-RESPA Integrated Disclosures Rule 6

7 TILA-RESPA Rule Overview Dodd-Frank directed the CFPB to integrate mortgage loan disclosures under the Truth in Lending Act ( TILA ) and RESPA. The TILA-RESPA Rule consolidates four existing disclosures under TILA and RESPA for closed-end credit transactions secured by real property into two forms: (1) Loan Estimate; and (2) Closing Disclosure (collectively, Integrated Disclosures ). Effective date: October 3,

8 TILA-RESPA SURVEY FINDINGS 51% of repeat homebuyers experienced unexpected costs, fees, or surprises POST-TRID 64% of consumers surveyed said it was easier to get a mortgage under the old rules 57% said closing under TRID rules takes more time 8

9 TILA-RESPA SURVEY FINDINGS 70% surveyed said that the actual closing was faster. 63% said that the LE and CD are easier to understand than the old forms 68% surveyed said that new forms better prepare consumers for closing costs and most agree that costs and fees explained better. 9

10 TILA-RESPA SURVEY FINDINGS Regarding the ability to shop for settlement service providers, 78% said they were informed of this option and 74% said that they took advantage of this option 55% said they thought that they saved money from being able to choose providers Survey Conducted by ClosingCorp s National TRID Impact on Homebuyers Survey 10

11 TRID Liability Lenders/Creditors retain liability but. Contract provisions can share liability Vendor activity can supersede lender liability in some cases Reputational risk 11

12 Top TRID Implementation Challenges LE and CD dated the same date CD- title fees not having Title in the description CD- missing contact information CD on refinances does not allow a place to show subordinate financing 12

13 Top TRID Implementation Challenges CD- title company file number not included on first page Lender inadvertently giving access to Realtor of borrower s CD Missing sellers CD 13

14 Top TRID Implementation Challenges Simultaneous Issuance Optional designation not being used correctly LE/CD- fee names don t match According to Sterbcow Law Group and Richard Horn 14

15 Settlement Service Provider Protections Comprehensive Contract Review Negotiation of Key Terms Inclusion of Protective Language 15

16 Settlement Service Provider Protections Indemnification Defined How realistic provisions may be included in key contracts Is the lack of an indemnification clause a deal-breaker? 16

17 Settlement Service Liability Risk areas Data privacy and security Disclosure of non-public information Failure to communicate with business partners causing unnecessary delays 17

18 Vendor Management Not a new concept Vendor management defined TRID shining spotlight on vendor management 18

19 Vendor Management Moody s Investors Service Report published in December 2015, 90% of loans contained a TRID violation Traced to challenges in partnerships between lenders and technology vendors Settlement service providers also facing technology gaps 19

20 Vendor Management Director Cordray has made public statements regarding vendor preparedness Vendor management in TRID space will be a CFPB priority in

21 Vendor Management Government Sponsored Entities (GSE s) have indicated in letters to sellers and servicers that material interference with a loan s resale value will be their standard for invoking remediation. 21

22 Vendor Management Dealing with lender vendor management programs Don t agree to do something that the company will simply not do Push back on requirements that are not rooted in applicable law Watch contract deadlines and ensure they are reasonable 22

23 A Word About Data Privacy and Security Understand the risk involved with cybersecurity Education and awareness is critical Establish back-up systems and monitor 23

24 A Word About Data Privacy and Security Create an incident response plan and task someone to lead this effort Implement password protection practices Establish policies and procedures for employees that work away from the office 24

25 A Word About Data Privacy and Security Spam and Phishing are significant risk areas Consider encryption options Understand state law requirements/federal law requirements 25

26 QUESTIONS? CONTACT: Anthony M. Sharett, Partner, National Co-Chair Financial Services Industry Group BakerHostetler 65 E. State Street Capitol Square, Suite 2100 Columbus, Ohio (614)

27 Atlanta Chicago Cincinnati Cleveland Columbus Costa Mesa Denver Houston Los Angeles New York Orlando Philadelphia Seattle Washington, DC These materials have been prepared by Baker & Hostetler LLP for informational purposes only and are not legal advice. The information is not intended to create, and receipt of it does not constitute, a lawyer-client relationship. Readers should not act upon this information without seeking professional counsel. You should consult a lawyer for individual advice regarding your own situation Baker & Hostetler LLP. All Rights Reserved.