A major change could hold up mortgage closings
People in the mortgage industry have been counting down the days until Thursday, when the trigger lead ban bill goes into effect, significantly limiting which entities can use the controversial leads to contact customers.
While that is likely the biggest regulatory change on the minds of brokers at the start of March, another regulatory change that on the surface doesn’t seem like it would impact brokers is drawing questions from originators.
Starting this week, a new report is required to be filed by closing and settlement agents with the US Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN).
The new regulation requires a report to be filed if a transaction satisfies four requirements: 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.
Based on these requirements, it would seem that originators wouldn’t need to worry about it due to the fact that the transactions don’t involve financing. However, one mortgage attorney said his office has been getting questions from brokers about other possible impacts.
Marty Green (pictured top), principal at mortgage law firm Polunsky Beitel Green, said there have been scenarios that could fall under these new regulations that brokers are looking for clarity to make sure they’re compliant.
“One thing that I'm seeing a fair number of questions about is the FinCEN rule that went into effect on March 1,” Green told Mortgage Professional America. “What that rule is really dealing with is transaction reporting in non-financed transactions, but where we're seeing some of the questions come up is in a refinance scenario.”
Uncertainty on impact
In the refinance scenario in question, Green said it is often a situation where there is a change to the deed.
“Where title is changing, where you're taking a person off and doing a quitclaim deed, there could be some reporting requirements from the title companies that they're going to have to do,” Green said. “So there's just a lot of uncertainty with respect to that. I'm getting a fair number of questions in terms of that space.”
Green said brokers should reach out to title agencies and closing agents, especially if they’re doing refinances that involve entities with changes to the deed, to see if they might be impacted.
“I think they need to be talking to their title companies and closing agents about how that rule is going to impact what they're doing,” he said. “Keep in mind, on a purely finance transaction, it's not going to matter. It's because you already have anti-money-laundering rules that are in place to deal with that.
“You may have some title companies, because of those reporting obligations, they become less willing to prepare some of those documents, because now they have financial responsibility to report. If they don't report, the remedies are pretty extreme, like up to $250,000 in penalties, potentially.”
Delays are possible
There could be smaller title companies that might not want to get involved in these types of transactions because the ramifications for mistakes are heavy.
“I think you're going to see some title companies, particularly smaller ones, that are going to become less willing to do some of those ministerial tasks that they've done in the past where the risk/reward doesn't make sense to them, or it's going to delay the financing,” Green said. “They've got to prepare the documents, gather the information, and so expect sellers to be asked those questions, or buyers in certain instances, if they are an entity.”
Even for brokers who might not be directly impacted by this new reporting, there could be secondary impacts. Title agencies needed for closing could see delays as they incorporate the new reporting into their workflow.
“Expect some delays,” Green said. “Finding out from your title company, ‘Do you see any FinCEN issues with respect to what we're proposing to do here? Is there anything that's going to delay my closing?’ These would be good questions to ask if I were a broker, particularly if you know something's come to or from an LLC, or from a trust.
“There’s just some complexity to it. And then the big thing is, the remedies are so severe that you will see some participants who are going, ‘Wait a minute. Do I really want to even involve myself?’ It’s a big change in terms of what folks may have thought, and people have to pay attention to that for sure.”
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