Fitch: US Lenders, Title Insurers See Operational Risk in New Rules
Glitches along the vendor chain as the new rules become effective on and after
The Truth in Lending Act and the Real Estate Settlement Procedures Act (TILA-RESPA) Integrated Disclosure (TRID) represents the most significant change to how mortgage lenders and title insurers perform closings since the
TRID replaces the GFE and Truth in Lending disclosures with a Loan Estimate form and replaces the HUD-1 Settlement Statement, currently used for matters such as itemizing closing fees, with a Closing Disclosure form. Both forms are intended to be easier to understand for consumers. The Loan Estimate basically locks in a set price and/or terms on most anticipated loan charges. It is expected that a failure to properly follow rules with the Closing Disclosure, such as needing to make changes within the 3-day window after delivery of the final document but before the closing date, could force a regeneration of document and delay closings. A survey by the
The bulk of the customer-facing responsibilities for properly executing a timely closing will continue fall on the shoulders of lenders. However, the related participants supporting lenders could face lost business if they fail to keep up with lenders' expectations for managing the new rule. A significant number of delays could cause a revenue blip for mortgage participants during the first quarter of 2016, when almost all closings in that calendar period would be executed under the new disclosures.
The top four US title insurers (Fidelity National Financial, First American Financial,
Fitch believes there is a rising potential for market consolidation among title insurers as large-scale players tend to better provide resources to comply with the new and likely stringently enforced rules.
The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.
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