ComplianceEase, a provider of automated compliance solutions to the financial services industry, today released an analysis of compliance defects for closed loans and estimated that the cost of correcting these errors is increasing the cost of origination, on average, by approximately $28 for every loan. The analysis was based on a cross-section of 700,000 audits that were performed in ComplianceAnalyzer and RESPA Auditor during the first quarter of 2015. It found that 17 percent of the loans failed for Truth in Lending Act (TILA) reasons. Another 6 percent of the loans—or one in 15—failed for being outside of the Real Estate Settlement Procedures Act (RESPA) tolerances.
ComplianceEase estimates the average RESPA reimbursement was $328 for the 6 percent of loans that failed the RESPA tolerance test and $740 for the 2 percent of all loans that had an uncured RESPA violation (i.e., an error discovered by an attorney, borrower, or regulator after closing). This means that these defects are adding, on average, $28 per loan to the costs of origination, and that’s before the new TILA-RESPA Integrated Disclosure (TRID) rule takes effect in October.
In addition to reimbursement, the new TRID rule has a three-tiered civil money penalty that can range from $5,000 per day to $1 million per day for “knowing violations.”
The analysis also showed that one year after the enactment of the Qualified Mortgage (QM) rule, 4.5 percent of QM loans failed Safe Harbor tests and 11 percent of loans were mis-categorized as to their QM status.
“Based on our analysis, closing defects are already an expensive problem for lenders under the current rules, and are about to get riskier and more expensive under TRID,” said John Vong, president of ComplianceEase. “Lenders and settlement service providers will need to work together so they can produce higher quality loans and not add to the already high costs of origination.”
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