Florida Home Title Company on Table Funding
As a title company based in Florida, it’s essential that we understand the procedures and regulations surrounding table funding.
In our previous post we discussed the differences between dry and wet funding. In this post, we’ll look at table funding in more detail, and how it is regulated by TRID.
Wet Funding Recap
Florida is a wet funding state, which means that lenders are required to provide loan funds without delay – either before or on the day of closing of a purchase. This ensures that all relevant parties at closing – the seller, title company, broker, agents, and so on – receive payment on closing day, once all the paperwork has been signed. Payment is usually in the form of a check, although in some cases cash or wire transfer may also be used.
This form of funding is riskier than dry funding, as the lender, and title company have to check the paperwork for inaccuracies or fraud at the same time these payments are made. However, wet funding speeds up the property transfer process, allowing home-owners to take possession of the home and take title immediately.
Table funding is a specific form of wet funding. This means that, at the time of closing, the loan originator is not in possession of the loan funds. So who actually pays the funds?
In most instances, either a title company or a mortgage broker who has been approved for wholesale lending can originate, process, and close loans in their name. At the time of settlement, the broker or title company agent transfers this loan to the lender. On paper, the loan is in the broker’s name, but the funds are actually supplied by a separate lender.
The lender will usually fund these kinds of loans using internal capital. This refers to the bank or mortgage company’s income or profits that are not distributed to shareholders – instead, this income can be used as capital to fund new investments. Once the lender has issued enough of these loans, they can be packaged and sold on the secondary market to mortgage loan investors (like Freddie Mac or Fannie Mae) or private investors. The sale of parceled loans allows the lender to recuperate the capital initially invested, and to make a profit on the loans issued.
How does TRID affect Table Funding?
TRID – or the TILA-RESPA Integrated Disclosure Rule – protects citizens from predatory loan practices, especially in real estate transactions. In terms of table funding, the following important rules apply:
- TILA’s Regulation X requires that broker compensation is stated in the “points and fees” calculations. It also restricts how much compensation brokers can receive, and includes prohibitions on “steering” a client to a particular loan that would result in higher compensation for the broker.
- RESPA’s Regulation Z requires that the lender’s compensation to the mortgage broker or title agent is disclosed on the Good Faith Estimate and HUD-1 Settlement Statement.
This allows consumers to see how much their broker or agent will benefit financially from the table-funded loan transaction, and to budget accordingly for closing costs or to choose a different broker or lender.
For more information about table funding, contact Florida Home Title Company today.