Workshare: What You Don’t Know Can Hurt You

(Michael Cremata is corporate counsel with ClosingCorp, San Diego. He previously wrote for MBA NewsLink in June on When Is a 10 Percent TRID Tolerance Not a 10 Percent Tolerance? The company’s website is

If you’re a lender, you probably had one of three possible reactions to the title of this blog:
1. That workshare stuff is bad news. Good thing none of my vendors are doing it.
2. Workshare. I think some of my vendors might be doing it, but what’s the big deal?
3. What the heck is workshare?

Regardless of which “camp” you fall into, here’s what you need to know about workshare: It is potentially bad under TILA-RESPA Integrated Disclosure Rules. And some of your vendors probably are doing it–whether you realize it or not.

For those of you in Camp #3, workshare describes a relatively common situation where a settlement service provider (typically a title or settlement vendor) is not licensed to perform services in a given state, but has relationships with one or more other providers in that state, who are licensed and can perform these services.

What does this look like in practice? ABC Title wants to make sure its Bank Corp’s “one-stop-shop” for all of its title and settlement needs. So when Bank Corp asks how many states ABC Title can service, ABC says, “We do business in all 50 states.”

What ABC Title may or may not bother to tell Bank Corp–heads-up, Camp #1–is that they are actually only licensed in 35 states. In the other 15, they refer the business out to XYZ Title (maybe just a portion of it, such as the title policy; or maybe the whole kit and caboodle).

Now that you know what workshare is, and that your vendors could be doing it whether you realize it or not, why should you care? You should care (Camp #2) because workshare presents a number of potential compliance risks that can affect you, the lender.

First issue is vendor vetting and lenders’ obligations to “oversee their business relationships with service providers in a manner that ensures compliance with federal consumer financial law.” In the example above, Bank Corp has vetted ABC Title according to its standard vendor selection protocols. But Bank Corp probably hasn’t vetted XYZ Title, because they aren’t aware of that company or that it is involved in this mortgage. So if Bank Corp chooses ABC Title to perform services for a given transaction, and ABC refers the business to XYZ Title, services are now being performed by a vendor that Bank Corp has not vetted. Bank Corp is potentially exposed to liability for failing to properly supervise a provider performing services for its borrowers.

There are also compliance issues related to TRID. As a lender, TRID requires you to provide your borrower with a written list of “available” providers for all settlement services for which a consumer is permitted to shop (commonly called a “Settlement Service Provider List,” or “SSPL”). In addition, TRID states that a lender does not comply with this requirement if it provides an SSPL “consisting of only settlement service providers that do not provide services where the consumer or property is located.”

If Bank Corp discloses ABC Title on the SSPLs for all of its loans, but ABC is not actually licensed to perform title services in 15 states, has Bank Corp complied with its obligation to list “available” providers for transactions in those states? A conservative interpretation of this requirement would hold that they have not.

Next, let’s consider the obligation under TRID to list the name of the company employing the settlement agent on a Closing Disclosure. If Bank Corp is preparing its own CDs, it might list ABC Title as the settlement agent for all transactions. If ABC Title is, unbeknownst to Bank Corp, referring some of those transactions to XYZ Title under a workshare arrangement, Bank Corp may unknowingly be in violation of TRID because the settlement agent for the transaction is employed by XYZ Title, but ABC Title is listed on the CD.

Now suppose the CD is prepared by an XYZ Title settlement agent rather than Bank Corp itself. In this case, the settlement agent will presumably list its employer, XYZ Title, on the Closing Disclosure, so there’s no problem under the requirement described in the previous paragraph. But this raises a whole new TRID issue: think about the implications on Bank Corp’s ability to recognize and cure tolerance violations.

Bank Corp’s post-closing department will compare the SSPL (which lists ABC Title) to the CD (which lists XYZ Title). Assuming the closing department is unaware of the workshare arrangement, it will mistakenly classify title/settlement services as “borrower-selected” (and thus not subject to any tolerance restrictions under TRID). But, in the case of a workshare arrangement, those services were not in fact borrower-selected. So the bank thinks there are no tolerance restrictions on these fees, when in reality they are likely held to 10 percent or 0 percent tolerance (depending on the circumstances). If fees for these services increase beyond the applicable tolerance restrictions at closing, Bank Corp will likely fail to recognize the violation, and thus miss their opportunity to cure it.

With all of these compliance risks–not to mention the effects they could have on secondary marketability of the affected loans–you might wonder why workshare arrangements would ever be allowed to continue in a post-TRID world. Well, they may eventually go the way of the marketing services agreement; only time will tell. But the truth is these arrangements can offer some very appealing convenience benefits to lenders. And it is theoretically possible, given the right operational processes, to avoid every one of the potential compliance pitfalls raised above.

This much is certain, though: if you’re a lender, you’d better at least be aware of the prevalence of workshare arrangements within your vendor network, and you’d better understand the risks. Because when it comes to workshare, like so many things in TRID, what you don’t know can hurt you.

(Views expressed in this article do not necessarily reflect policy of the Mortgage Bankers Association, nor does it connote an endorsement of a specific company, product or service. MBA NewsLink welcomes your submissions; articles and/or Q/A inquiries should be sent to Mike Sorohan, editor, at