For years the mortgage industry has been inundated with paper processes and the shuffling or paper files back and forth to complete a loan file. This has definitely been the case with disclosures causing numerous inefficiencies and not to mention 1,000’s of paper cuts throughout the process.
Historically, mortgage lenders have loosely managed the paper intensive disclosure process without much attention to detail in two steps. For the first step most lenders issued initial disclosures when they had a file ready for processing. Then a second step would be to correct disclosures that were missing, had non-compliant dates, or were incorrectly prepared at closing. Although many regulatory requirements were in place back then, regulators often assumed that the lenders were properly handling these regulations. Today it’s a whole new game and lenders need to implement effective electronic disclosure solutions to stay in business.
The Truth in Lending Act (TILA) and Real Estate Settlement Procedures Act (RESPA) has required lenders to provide two different disclosure documents to consumers applying for a residential mortgage loan. The goal of these two documents was to present a complete picture of the loan transaction for borrowers in a timely manner to simplify the process of understanding fees, payment terms, and loan program features.
Additionally, there are numerous Federal and State disclosure requirements for locking rates, loan programs, mortgage insurance, appraisal, flood, Change of Circumstance, and of course the new TILA-RESPA Integrated Disclosure (TRID) process. The disclosure process now takes place at application and at multiple times along the way, prior to a loan closing. And, to add stress to a lender’s operation, regulators are stepping-up enforcement to ensure and document how disclosures were completed, delivered, and received by applicants.
The CFPB has acknowledged that the disclosure process has been a huge pain-point for all parties involved. There are multiple disclosure types and numerous paper documents that are shuffled back and forth, and it is easy to see how those involved in the current disclosure process are experiencing “death by a 1,000 paper cuts”.
To “simplify” the lending process for applicants the CFPB set out to address this issue by integrating the mortgage loan disclosures required under TILA and RESPA to create the TILA-RESPA Integrated Disclosure (TRID). The mortgage industry is now only months away from the CFPB’s August 1, 2015 deadline for the new requirements under TILA-RESPA and the new Integrated Mortgage disclosures. The requirements of TILA-RESPA reform (TRID) as well as other ongoing regulatory updates create a host of challenges for mortgage lenders and their technology providers.
Let’s face it – the disclosure process is extremely complex. While TRID is getting all of the headlines, there have been and continue to be an onslaught of changes, updates, and new requirements for all types of disclosures. These include: Application disclosures, 3-Day Disclosures, Program Disclosures, MI Disclosures, Change of Circumstance Disclosures, Lock Disclosures, Appraisal Disclosures, Closing Disclosures, and even Flood Disclosures when required.
In addition, regulators are much more assertive with monitoring and supervising regulatory practices, putting a heavy burden on lenders trying to comply with the latest rule or regulation. It is not enough to just address the new TILA-RESPA Integrated disclosures. The regulators continue to change, modify, and revise requirements for all of the disclosure types.
TRID requires significant changes to the loan origination process, specifically in how lenders handle closings. The new requirements state that the closing disclosure needs to be at least three days ahead of closing to meet the Closing Disclosure timing requirement. Lenders are now on the hook and liable for closing, and any error could have a significant impact on all parties of the loan transaction. Last minute changes will impact not only the borrower, but also the seller and other related parties involved in the real estate transaction.
This now presents a number of challenges that the lender must be able to address, properly disclose, and track to avoid potential penalties and fines. What is the actual disclosure process for this specific disclosure? Is there just a borrower or is there a co-signor? What is the delivery channel? Internet? Email? SMS address? Has the borrower e-consented or opted out? If opt out, has the printed disclosure met the timing requirements? Who is responsible for re-disclosing? How is all of this being communicated and tracked?
The new regulatory requirements and implementation of TRID creates an environment of elevated risk for lenders. Accountability, liability for timing, accuracy, and completeness of disclosures with the ability to track and provide a detailed audit history is putting intense pressure on lenders to comply. This is especially true for small and mid-sized lenders who don’t have endless resources to throw at this issue, but can’t afford to not properly address these changes.
To manage the process lenders should:
- Have a system in place that identifies loan applications, For example, do my policies & procedures clearly spell-out when does a “pending application” become a “loan” (recalling that a loan is what triggers disclosure rules)
- Have a system in place that uses data from the LOS to identify when disclosures are required and establish workflow to automate the process when possible
- Have an operations process that ensure disclosures are accurately prepared and delivered to applicants in a timely manner
- Have a system in place that automatically logs and tracks information that identifies what information triggers a disclosure event, how disclosures were delivered and, when possible, an acknowledgement of applicant receipt of the disclosures
- Have a system that stores copies of the disclosures that were issued
- Have reporting in place to identify disclosure requirements, successful delivery, and disclosure exceptions.
Are you confident your vendor is able to comply with these complex changes while maintaining service levels and operational efficiency? The time to enhance your outdated disclosure process and technology is now. It’s not just about avoiding paper cuts anymore but being able to proactively address the new and mandatory regulations.
About The Author
Lionel Urban serves as CEO, founding partner and chairman of the board for PCLender, LLC; in this role, he is responsible for the overall strategic direction and the vision behind the technology development of the company. Prior founding PCLender, LLC, Lionel was a co-founder and CEO of Navigator Lending Solutions, Inc. (NavPros) a fulfilment services company specializing in mortgage banking services. Prior to NavPros Lionel was the co-founder, president and CEO of PCLender.com, Inc. from 1997 to 2011. During this time, he supervised the development of a pioneering, Internet-based mortgage technology platform that supports banks, credit unions and mortgage companies across the country. Since 1987 Lionel has acquired mortgage banking experience in management, origination, operations, secondary marketing and compliance roles within banks, credit unions and independent mortgage bankers.