Why brokers may be tasked to gather more info from borrowers
The recently paused new reporting requirements that were set to go into effect on March 1 were put on hold by the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN). That doesn’t mean the questions about these requirements have stopped.
At some point, a higher court will decide whether these new regulations are allowed under the Bank Secrecy Act or whether they should be thrown out. If they are allowed to go forward, that won’t end the questions surrounding the way the information is gathered.
Mortgage brokers will likely see limited direct impact on the FinCEN regulation, but they should be aware of potential transactions with lenders who do not complete BSA reports, like some hard money lenders. It could require brokers to track down more information about the transaction.
Once they get that information, it needs to be reported to the settlement agent. One mortgage attorney said that’s where the picture gets cloudy once again.
Jay Beitel (pictured top), mortgage attorney and partner at Polunsky Beitel Green, said that changes that were put into place with TRID, or the TILA-RESPA Integrated Disclosures, make some of the reporting wording a little unclear.
“One thing that I find a little bit interesting is what they call the cascading order of who has to file the report,” Beitel told Mortgage Professional America. “The top of the tier is the person who prepared the settlement statement. Well, it's interesting because pre-TRID, which was implemented in 2015, the settlement statement was a HUD-1 settlement statement.
“In the HUD-1 settlement statement, it was the duty and obligation of the settlement entity, title companies, or settlement company to prepare the HUD-1, not the lender. Lender fed them information, but it was the settlement entity that prepared the HUD-1. Well, after TRID, HUD-1 was no longer required, but a closing disclosure was required. Well, a closing disclosure is not truly a settlement statement.”
Who files the report?
These now-paused reporting requirements were in place if four factors are met: the property is residential, the buyer is not obtaining financing, the buyer is an entity (such as an LLC or trust), and there are no applicable exemptions. Also, if the lender doesn’t report suspicious transactions to FinCEN, reporting would be required. Figuring out who is required to report is another matter.
While a closing disclosure includes most of the same information found in the HUD-1 settlement statement, it’s not exactly the same. So it’s causing some confusion as to who the settlement agent is, and who needs to report any suspicious transactions under this currently-paused regulation.
“It may contain all the information that you'd find on a settlement statement, but it's truly a disclosure under Regulation Z to the borrower,” Beitel said. “Many residential loan transactions don't have a separate settlement statement. They just used the closing disclosure. So you could have a transaction that's covered by RESPA, for which the lender isn't obligated to file a suspicious transactions report.
“Who prepares the CD? There’s a little bit of uncertainty as to who this person is who is preparing the settlement statement. Title companies, the ones I've dealt with, have pretty much said they're the reporting person. They're the ones that are number one on the list that have to follow these reports because they're handling the closing, but I don’t think they’re preparing the document.”
Most of the conventional loans that might fall into this category are going to be handled by a bank or lender that has reporting requirements under the BSA. Beitel said the issue comes in when the lender doesn’t fall under those reporting requirements.
“For those that are outside of those types of vendors, the question is going to come up, if they do a CD, is that going to be deemed a settlement statement, and therefore they are first on the list to file the report?” he said. “Or is it the title company that handles the settlement? A lot of this stuff we'll find out as we go.”
When brokers may be involved
Beitel wonders whether mortgage professionals involved in these types of transactions will have to find out up front if the members of the entity will be forthcoming with the information FinCEN requires. This means brokers may have to ask for this info at the start of the process.
“The guidance says, ‘If the people are not cooperating with you to give you the information, then you shouldn't handle a transaction,’” he said. “You’ve got a settlement agent who is going to be obligated to file the report. At what point in time are they going to discover that the people involved are not going to cooperate?
“It seems to me, the person who has to file the report, as soon as somebody brings them the transaction, they're going to have to say, ‘Give me all this information. And if you can't, or you won't, take it to somebody else.’ As opposed to waiting until it closes and then saying, ‘Oh, by the way, I’ve got to fill out a report, give me this information,’ and they all go silent on you.”
Brokers may need to help settlement agents get answers at the front end of these transactions, otherwise these transactions may be dead on arrival.
“If it holds up, I think it's going to change the way settlement agents obtain the information,” Beitel said. “They're going to obtain it up front, or not do the deal.”
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