The CPFB’s TILA-REPSA Integrated Disclosure (TRID) Rule went into effect on October 3, 2015, following a two-year period of consternation and anticipation on the part of mortgage industry professionals, particularly lenders and originators. When the CFPB initially released the final rule on TRID in late 2013, the rule contained more than 1,900 pages.
In an effort to make the mortgage settlement process smoother for the borrower, TRID combined four disclosures into two. The Good Faith Estimate (GFE) and initial Truth-in-Lending disclosures combined to form the Loan Estimate, and the HUD-1 and final Truth-in-Lending disclosures combined to form the Closing Disclosure. At the same time, the CFPB shifted the onus of accurate settlement forms from the settlement service provider to the creditor, thus creating numerous compliance and quality control challenges for mortgage creditors.
It has been more than three years since TRID launched. The CFPB has made changes to the rule along the way, but lenders and originators still find it challenging to comply with parts of the TRID rule. Mortgage Compliance Magazine recently sat down with Belinda Kraus, Vice President of Risk and Compliance at Trelix™, an Altisource Business Unit, to discuss what challenges she is seeing in the industry and what to do about them.
MCM: Is there any way we could have seen this coming when TRID went into effect?
Belinda Kraus: In 2015, had you asked me to forecast quality control issues three and a half years into the future I would not have anticipated we would still be dealing with TRID issues. If I choose the top three quality control trends I currently see the industry struggling with, the top two relate to TRID compliance.
The first trend is in regards to fee tolerance violations on the Closing Disclosure. Documenting the Loan Estimate requires each fee to be placed in one of three different categories– a zero tolerance, 10 percent cumulative tolerance, or no tolerance bucket depending on the fee and whether or not the borrower is allowed to shop for the service provided. The zero tolerance and no tolerance categories sound as though they would have similar requirements; however, they are subject to two different thresholds. Zero tolerance refers to those fees or services that the creditor does not allow the borrower to shop for. The no tolerance category is unlimited, or those fees that the creditor does not have control over, meaning the borrower chose to shop and selected a third-party provider that was not recommended by the creditor. Keep in mind, though, creditors are always required to make a good faith effort to accurately estimate the fee utilizing the best information reasonably available at the time. The 10 percent cumulative tolerance bucket is for charges or fees that relate to recording of legal documentation and the third-party services the creditor recommended and the borrower selected. As the loan manufacturing process progresses, services and fees are selected causing fees to potentially move from one bucket to another. This is where the industry is getting tripped up and fee tolerance violations are occurring.
MCM: What can lenders do to counteract this?
Kraus: The best practice to curtailing TRID fee tolerance violations is to utilize industry compliance technology. Use it early and often. I recommend that lenders run the compliance tool a minimum of four times during the lifecycle of the manufacturing process. Run the tool before the borrower is given the Loan Estimate, run it on any revised Loan Estimates, run it before the Closing Disclosure is given to the borrower and again if there are any revisions to the Closing Disclosure. It is cheaper to run your compliance engine multiple times throughout the process than it is to continually pay tolerance violation fees.
MCM: What else are lenders still having trouble with as far as TRID compliance?
Kraus: The second TRID violation trend relates to the timing of the Loan Estimate and the creditor requesting the borrower’s intent to proceed. The rule specifies the borrower must receive the Loan Estimate first, and then the creditor can ask the borrower for their intent to proceed. How the creditor receives the intent to proceed is also dictated by the rule. Intent to proceed can be done verbally or as a written communication. The written communication can be in an email or a pre-printed form from the lender wherein the borrower signs indicating, “Yes, I have received the Loan Estimate, and now I’m indicating my intent to proceed with this loan.” Borrower silence is not indicative of an intent to proceed. The lender must ensure the intent to proceed communication received from the borrower is retained in the file. There are a couple of ways that this can happen, but the biggest hurdle can be retaining proof that the borrower received the Loan Estimate prior to the loan officer asking the borrower to give their intent to proceed.
MCM: Is technology the solution in this area as well?
Kraus: Yes. Utilizing technology is a way to ensure loan officers don’t put the cart before the horse. If you build a hard stop into your technology that requires proof of Loan Estimate delivery before unlocking the intent to proceed field, then the loan officer can’t get overzealous and do the whole process at once. The lender must retain a record of the intent to proceed. So, what happens if the loan officer received verbal intent to proceed? Program your technology to include a date and time stamp field in the notes section, so you can still prove the Loan Estimate was delivered before the loan officer received the intent to proceed from the borrower. The CFPB really wants to see those two distinct steps.
MCM: That takes care of the two common struggles with TRID compliance. What else have you seen the industry struggling with outside of TRID?
Kraus: The third most common compliance issue is erroneous income and asset calculations. The industry seems to continuously struggle with these calculations, which boggles my mind a bit since we have all of this great technology that can do the work for us. Even an Excel workbook can be programmed to accept data input that will complete the calculations.
MCM: That sounds like a simple enough solution. Is there more to it?
Kraus: A formulated spreadsheet in Excel is the simplest use of technology for this purpose, but technology continues to progress and now optical recognition is becoming more commonplace in the mortgage industry. Ideally, a lender automates as much of the manufacturing process as they can. If the loan officer can scan income and asset documentation into optical recognition software at the onset of the application process, errors will be reduced on the front end. It boils down to whether or not the lender can justify the cost of technology over the cost of correcting the errors that occur.
