Question: We are a lender with a question about the list of settlement service providers. We permit our borrowers to shop for settlement services. Since we permit shopping for settlement service providers, do we have to provide any written list for these companies?
A creditor is required to provide a written list of the settlement service providers for which the creditor permits the consumer to shop for providers. Furthermore, a creditor may permit a consumer to shop for a settlement service provider if it permits the consumer to select the provider of the service, subject to reasonable requirements.
But, the written list requirement does not apply if the creditor does not permit the consumer to shop for any of the settlement services.
If a creditor permits a consumer to shop for a settlement service it requires, the written list must identify at least one available provider of that service and must state that the consumer may choose a different provider for that service. [TRID Rule under RESPA Regulation X; see TILA Regulation Z § 1026.19(e)(1)(vi)]
The CFPB has clarified that the creditor who permits a consumer to shop for settlement services must identify the settlement services required by the creditor for which the consumer is permitted to shop. The purpose of this revision was to clarify that the disclosure need not include all settlement services that may be charged to the consumer, but must include at least those settlement services required by the creditor for which the consumer may shop. [Revised Comment 19(e)(1)(vi)-2, July 7, 2017]
The CFPB also clarified that the creditor must identify settlement service providers, available to the consumer, for the settlement services required by the creditor for which a consumer is permitted to shop. For instance, if a creditor requires a consumer to purchase lender’s title insurance and the creditor permits the consumer to shop for lender’s title insurance, the creditor must disclose the lender’s title insurance on the Loan Estimate and at least one provider of the required settlement service, on the written list, capable of coordinating or performing the services necessary to provide the required lender’s title insurance. The list must include sufficient information to allow the consumer to contact the provider, such as the name under which the provider does business and the provider’s address and telephone number. [Revised Comment 19(e)(1)(vi)-4, July 7, 2017]
The creditor may identify on the list providers of services for which the consumer is not permitted to shop, provided the creditor clearly and conspicuously distinguishes those services from the services for which the consumer is permitted to shop. The list may accomplish this by placing the services under different headings.
It is worth noting that the Federal Register preamble to the July 2017 (supra) amendments states that a creditor is not required to provide a detailed breakdown of all related fees that are not themselves required by the creditor but that may be charged to the consumer, such as a notary fee, title search fee, or other ancillary and administrative service needed to perform or provide the settlement service required by the creditor. The same principle applies to the disclosure of services on the Loan Estimate.
The CFPB believes that a complete breakdown could lead to information overload and hinder the consumer’s ability to shop. However, a creditor must be sure that these fees, if excluded from the Loan Estimate, do not cause the sum of all charges subject to exceed the 10 percent threshold. [See § 1026.19(e)(3(ii)]
Jonathan Foxx, Ph.D., MBA is Chairman and Managing Director of Lenders Compliance Group, the first and only full-service, mortgage risk management firm in the United States, specializing exclusively in outsourced mortgage compliance and offering a suite of services in residential mortgage banking for banks and non-banks. If you would like to contact him, please e-mail [email protected].