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TRID 2.0: Now What?

Over a year in the making, TRID 2.0 was finally released on July 7, 2017. With an effective date 60 days after the final rule is published in the Federal Register, and a mandatory compliance deadline of October 1, 2018, the industry is sure to have a lot to say about these new regulations.

TRID 2.0 is meant to provide additional clarity to the original TRID rule that went into effect on October 3, 2015. Changes include:

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Cooperative Housing. Loans on cooperative housing are now covered by TRID, having previously been left to state law definitions of real and personal property.

Tolerances. New tolerances have been added and others have been clarified, including total of payments, the “no tolerance” category and good faith, and property taxes.

Rate Locks. A new Loan Estimate, or Closing Disclosure, must be provided upon rate lock, even if nothing has otherwise changed.

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Escrow. The Closing Disclosure Escrow Account Disclosures have been clarified, allowing for 12 months in “Year 1” calculations.

Additional Guidance. The amendment provides additional guidance around disclosure of construction to permanent loans, simultaneous second loans, disclosure of principle reductions, and a reiteration that re-disclosure of the Loan Estimate (LE) or Closing Disclosure (CD) is permitted at any time.

What’s Missing?

The CFPB has not yet finalized proposed changes to resolve the infamous “black hole” issue; instead, they published a new proposal. In case you’re unfamiliar, complications arise due to potential timing conflicts between the Loan Estimate and the Closing Disclosure. If a borrower experiences a change in circumstance after they have received the Closing Disclosure and needs to delay the date of closing, there are concerns that a lender will be unable to comply with both the requirements to provide a revised disclosure to the consumer within 3 business days of the change and simultaneously within 4 business days of consummation in order to reset the tolerance thresholds for the good faith determination. There is even uncertainty of the ability of a re-disclosed Closing Disclosure to reset tolerances at all. Can we expect a final TRID 3.0 to resolve the issue? Only time will tell.

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Similarly, the issue of disclosure of simultaneous title quotes for owner’s and lender’s title premiums remains unchanged and unaddressed. The current, and very complicated, method of calculating lender’s title in the case of a simultaneous quote still stands and is not currently included in the “black hole” proposal.

What Happens Next?

Our main concern after dissecting TRID 2.0 is the phased implementation. On the surface this sounds like a great thing for lenders, but what happens when a consumer compares disclosures between lenders? This gets tricky when it comes to the application date. Additionally, you don’t want to change to the new calculations in the Calculating Cash to Close table mid-loan cycle with your consumers. This would result in re-disclosed Loan Estimates, or the Loan Estimate and Closing Disclosure on a single loan may utilizing different logic. This could confuse consumers as well as investors on loan purchase, and examiners down the line.

Regardless of the outcomes our industry will adjust. One thing is for sure, policies, procedures, and technology will continue to play an essential role in mortgage compliance.

About The Author

Amanda Phillips
Amanda Phillips is EVP Legal and Regulatory Compliance for Mortgage Cadence, an Accenture Company. She works closely with Mortgage Cadence Product and Development teams to help interpret compliance requirements and assist in developing risk mitigation strategies and implementing the requisite controls within the Mortgage Cadence platforms. She also communicates with clients regarding Mortgage Cadence compliance interpretations and controls. Phillips joined Mortgage Cadence in January 2014 as its Legal and Compliance Lead, guiding development of the organization’s technologies, including the Enterprise Lending Center, the Loan Fulfillment Center and the Document Center.

Finally Getting It Right

The CFPB’s announcement that it had finalized the long-awaited amendments to TRID, initially proposed in July 2016 and commonly referred to as “TRID 2.0,” was a welcome surprise. The industry had been calling for updates, both in the way of substantive changes as well as clarifications of numerous ambiguities in the rule, since TRID’s inception. With the finalization of TRID 2.0, the CFPB has at last answered those calls.

“While the yearlong delay since its initial proposal has been frustrating to many in the industry, I think it’s clear from reading through the final rule that the changes ultimately adopted, and the Bureau’s accompanying commentary, reflect a thorough and thoughtful consideration of all feedback received from consumers and industry in response to the updates initially proposed. The Bureau clearly took their time to try to “get it right,” and I think they should be commended for that,” said Michael Cremata, Senior Counsel and Director of Compliance, ClosingCorp.

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Headquartered in San Diego, Calif., ClosingCorp owns and operates the premier source of intelligence for closing costs and service providers in the U.S. residential real estate industry. Through innovative solutions, progressive technologies and strong alliances, the company delivers timely, accurate and transparent results that help optimize closing processes and services for mortgage lenders, title and settlement companies and real estate professionals. Clients rely on ClosingCorp to help improve efficiencies and mitigate risk.

“Some of the important changes made by the rule include: introducing a tolerance for the “total of payments” disclosure; clarifying requirements around the disclosure of construction and construction-permanent loans; expanding the exemption for certain housing assistance loans; and clarifying and revising various calculations in the “Calculating Cash to Close” table. All of these changes are helpful, and should be welcomed by the industry. However, there are a few areas where I believe the Bureau missed the mark.

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“One such area is the final rule’s failure to add meaningful guidance regarding the extent to which settlement service fees may be itemized on a Loan Estimate (LE) or Written List of Providers (WLP). While the initial proposal included a helpful clarification that fees for certain “packages” of settlement services may be aggregated, the Bureau decided to drop this clarification from the final rule in favor of a comment clarifying that lenders need not include on the LE or WLP “related fees . . . not themselves required by the creditor . . . such as a notary fee, title search fee, or other ancillary and administrative services.” Whether or not these fees are disclosed on the LE or WLP, though, the rule makes clear that they still must be included in tolerance calculations at closing if they fall in the “10% bucket.” Therefore, no lender would intentionally exclude “related” fees from the LE or WLP and thus suffer a smaller “baseline” for purposes of calculating tolerances (and that’s to say nothing of the context in which the fees are held to zero tolerance, in which case there’s no clarity at all as to how they would be treated for tolerance purposes).”

However, John Levonick, Director of Regulatory Compliance at Clayton Holdings believes that as the industry digs through the new 2017 TILA-RESPA Integrated Disclosure Rule (TRID), or TRID 2.0, compliance and quality control service providers are left scratching their heads about the complexity, and possible confusion, that the rule’s open adoption period is going to create.

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“Based on our preliminary review of the 560 pages of “clarifications” that make up TRID 2.0, many if not most of the changes ease more onerous obligations from a timing, data, tolerance, content or calculation validation perspective,” said Levonick.

“The TRID 2.0 rule has an effective date that is 60 days from the date on which it is published in the Federal Register. However, compliance with the rule is optional for creditors until the mandatory compliance date of October 1, 2018. This creates an open phase-in period from the publication date through October 1, 2018, whereby creditors are permitted to choose to handle certain origination practices and disclosures either (1) in the way that was in place prior to the TRID 2.0 effective date, or (2) in the way identified as appropriate in TRID 2.0. In other words, during this phase-in period creditors can selectively comply with whichever individual requirements within the original rule and the TRID 2.0 rule that they prefer. Good news for lenders; bad news for automated rules engines and QC personnel.

“From a technology standpoint, this will cause certain external automated compliance tools to falsely identify errors that prior to TRID 2.0 were “material” and are now no longer. Providers will then need to manually “clear” these non-material errors. Most of the TRID 2.0 changes will require only minor readjustments to current loan origination system configurations (although construction loans will require more). But even minor changes take development time. And, at the moment, with many lenders focused on the coming Uniform Closing Dataset (UDC), the TRID 2.0 changes—which will not be subject to enforcement liability until the October 1, 2018 mandatory compliance date—will not go to the head of the queue.”

The bigger question is how will the Secondary Market react to TRID 2.0? Will investors be concerned about liability, and whether consumers have a private right of action for errors arising during this 2017 TRID phase-in window? “This will remain an unknown, to be addressed on a case-by-case basis as issues are identified. While the CFPB has stated that its “clarifications” are not retroactive, what will become of pre-existing TRID errors that, had they occurred after TRID 2.0’s effective date, would not be TRID errors?” answered Levonick.

“In the meantime, we all continue to work through the new rule, hopeful that, in the long run, its clarifications will reduce confusion, lead to fewer errors in origination, and increase secondary market pull through on loan acquisitions,” he added.

Cremata agrees that TRID 2.0 has some flaws. “It’s disappointing (although not surprising) that the Bureau refused to address simultaneous issue rates, additional cure mechanisms, or the so-called “black hole” (although the black hole is the subject of a new proposal, released at the same time as the final rule, on which the Bureau is currently seeking comments).

“Overall, the finalization of TRID 2.0 represents a significant positive development for the industry. Although it fails (or declines) to resolve several of what have been the industry’s biggest pain points with TRID, it nonetheless introduces a number of much-needed clarifications and amendments, and is unquestionably a step in the right direction by the Bureau,” he concluded.

About The Author

Tony Garritano
Tony Garritano is chairman and founder at PROGRESS in Lending Association. As a speaker Tony has worked hard to inform executives about how technology should be a tool used to further business objectives. For over 10 years he has worked as a journalist, researcher and speaker in the mortgage technology space. Starting this association was the next step for someone like Tony, who has dedicated his career to providing mortgage executives with the information needed to make informed technology decisions. He can be reached via e-mail at tony@progressinlending.com.

Ernst: Historic Number Of County Recorder Fee Changes

Ernst, a provider of technology and closing cost data for the real estate and home finance industries for the past 28 years, reported that the company was seeing vastly more fee changes for recording documents into the public record that has been typical for this time of year. Ernst tracks fee changes for the vast majority of lenders, automatically making updates to their systems so that guaranteed accurate fees are provided for disclosing to consumers on Loan Estimates, per CFPB’s TRID requirements.

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“We expect to see a fair number of fee changes and updates coming out of the nation’s County Recorders’ offices each month, but June has seen vastly more change activity than has been historically normal,” said Gregory E. Teal, president and chief executive officer of Ernst.

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County Recorders are under no obligation to inform mortgage lenders of fee changes but lenders are required under TRID to disclose accurate fee information to borrowers within three days of receiving a completed loan application. Failure to track changes in every jurisdiction can expose the lender to non-compliance risk, so Ernst tracks these fees with patented fee search technology and then updates its fee engines, guaranteeing the accuracy of every fee it reports back to lenders.

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In all, Ernst saw more fee changes in the first three weeks of June than it had seen in any one month over the past 11 years. We processed over 1000 data changes that impacted both recording fees and transfer taxes in nearly 350 or more recording jurisdictions. Uncharacteristically we’re continuing to see ongoing fee changes targeted  for implementation in both July and August.

Ernst programs processed 250 million real estate transactions in 2016, making it the most used technology of its kind in the industry. Since the company was founded 28 years ago, Ernst has processed well over 1 billion transactions and unveiled dozens of technologies and products that produce efficiency across the real estate industry. CEO Gregory E. Teal is a Mortgage Banking magazine Tech All-Star. The firm estimates that its technology is in use for 90% of the nation’s new loan originations and refinance transactions.

About The Author

Tony Garritano
Tony Garritano is chairman and founder at PROGRESS in Lending Association. As a speaker Tony has worked hard to inform executives about how technology should be a tool used to further business objectives. For over 10 years he has worked as a journalist, researcher and speaker in the mortgage technology space. Starting this association was the next step for someone like Tony, who has dedicated his career to providing mortgage executives with the information needed to make informed technology decisions. He can be reached via e-mail at tony@progressinlending.com.

Vendor Attributes Revenue Growth To TRID

DocMagic, Inc. reported a 42 percent increase in revenue for 2016. The company credits its growth to the mortgage industry’s demand for products that enable TRID compliance, eSignatures and eClosings. This is the second consecutive year that DocMagic’s revenue has increased by roughly 40 percent.

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“Lenders have been looking for ways to assure TRID compliance since 2015,” said Dominic Iannitti, president and CEO of DocMagic. “Our user base has grown quickly. A lot of existing DocMagic clients saw the value of SmartCLOSE immediately. It has also been an entry point for many of our new lender clients.”

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SmartCLOSE enables lenders to interface with settlement providers and other relevant parties in a secure portal to share, edit, validate, audit, track and collaborate on documents, data and fees. In the past two years, DocMagic has completed numerous key integrations between lenders using SmartCLOSE, their loan origination systems, and new settlement service provider systems. More integrations are being developed.

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“The number of eSignatures completed has increased significantly since launching SmartCLOSE and Total eClose,” said Iannitti, referencing activity for eSignSystems, a division of DocMagic that provides digital transaction management and electronic storage systems. “Lenders appreciate that they can stay compliant while gaining the speed and convenience of a digital process.”

DocMagic anticipates its growth will continue in 2017. In February of this year, the company completed a successful pilot that enabled one of the country’s largest warehouse lenders to accept and fund eNotes, a transition that Iannitti expects to become a major industry trend in the next 12 to 18 months.

DocMagic’s growth plans include ongoing calibration of its infrastructure. To maintain its standard for high quality and service, the company added staff in nearly all functional areas, including senior software developers, project managers, implementation specialists, technical support representatives, integration staff and business development professionals.

Progress In Lending
The Place For Thought Leaders And Visionaries

Compliance In A Post TRID World

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The regulatory environment for today’s mortgage lender has become exceedingly complex. Compliance becomes more difficult each day, as a cascade of new disclosure and lending requirements are imposed by federal, state and local regulators. With this avalanche of regulation it is becoming very difficult for mortgage lenders to gauge whether their internal compliance systems are functioning properly and whether the continuing cost, in both human and financial terms, of adopting and maintaining adequate regulatory controls can be sustained in a volatile origination market.

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At the same time, the absolute risk of non-compliance has become intolerable. Audits by regulators and investors alike are now commonplace and fines, penalties, and loan repurchase demands are escalating. As tough new regulatory standards increase the scope and absolute number of loans that must be evaluated carefully for compliance, investors have become acutely aware that several regulatory changes impose liability on the purchase of a mortgage loan for compliance errors made by its originator. It is no surprise that investors are increasingly demanding, prior to funding a loan purchase, that originators provide loan specific data in an electronic format complete enough to permit comprehensive automated compliance reviews on each loan to be purchased.

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Lenders, in order to cope with these added regulatory compliance risks, are faced with an immediate and compelling need to re-evaluate, and upgrade, the capacity of their internal systems to recognize and incorporate mandated regulatory changes. Static document systems and templates simply will not suffice to keep you compliant. To ensure compliance, mortgage disclosure and documents systems need to be dynamically constructed.

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For compliance professionals “letter of the law” compliance is no longer enough. For regulators, letter of the law compliance is a given. Lenders should be following the rules – period. The new standard for compliance is more rigorous. The CFPB has stated that it wants to see lenders going beyond what’s required by law, addressing the more esoteric aspects of mortgage origination with an eye towards improving the consumer’s experience. They are encouraging lenders to incorporate borrower satisfaction as a key component to their compliance strategy.

Of course, this is easier said than done. After all, so much of the impact of compliance on the borrower’s experience is outside of the lender’s control….or is it? The key to addressing the challenges of this enhanced regulatory compliance environment is to embed compliance within smooth electronic business processes. This enables a lender’s compliance department to manage regulatory risk and foster a culture of compliance across the organization, while, at the same time, enhancing the borrower’s overall perception of a positive consumer experience.

This involves creating and managing real-time software and delivery systems with programmed rules to get the right product, with the right mapping, into the right channel and deployed. If a lender is doing thousands of loans in multiple states and one state has changed its rules, it can be a major undertaking to adjust just a single form. Tools and software designed to completely automate that process, paper out, go paperless, or go e-mortgage are a necessity. Everyone in the lender organization gets the right forms, mapping, stacking order, rules, etc. and the lender can make adjustments to the form or package at any time.

Key elements of any such system involve:

>> The ability to program and enforce business rules and policies

>> Functionality to effectively manage compliance issues and changes in real-time

>> The flexibility to be the first to market with new product innovations

>> The ability to allow growth and improved volumes without adding staff

There will soon come a point when the CFPB begins to seriously audit lenders for TRID compliance. Many of the errors investors are citing, and subsequently rejecting TRID loans for, can be chalked up to lack of collaboration between the three major service providers in the transaction: the Realtor, the lender, and the title/settlement agents. The CFPB has said it will be sensitive to “good faith efforts” to comply, and it can be hoped that errors made due to lack of coordination will not be dealt with as harshly as would more egregious and/or deliberate attempts to circumvent the rules. However, if that overall lack of collaboration results not only in errors, but in a poor experience for the consumer, the CFPB may be less inclined to be lenient.

Consider the CFPB and its range of “Know Before You Owe” efforts. Two key components of their initiative have been TRID and the eClosing pilot. TRID is the CFPB’s attempt to improve the beginning of the transaction by providing consumers with easier-to-understand loan documents and more consistent pricing estimates. The eClosing pilot is aimed at demonstrating how to improve the closing transaction (a process that has remained largely unchanged for 50 years or more) via technology.

It’s clear from the CFPB’s findings after their evaluation of the eMortgage pilot project that eClosing provides consumers a better closing experience. Thus, eClosing adoption is a simple way to signal to the CFPB that customer satisfaction is a lender’s priority and, thus, earn the bureau’s goodwill. Furthermore, the functionality inherent in eClosing platforms can provide compliance professionals with much needed process efficiency and audit support.

So – what is an eClosing? On its website, Fannie Mae describes an eMortgage as one that entails electronic promissory notes, SMARTDoc Format, and other execution processes. The GSE exhorts lenders to consider eMortgages for their automation delivery, paperless trail, and reduced impact on the environment. The more radical notion is the all-digital eClosing. This involves a process that contemplates the electronic delivery, execution and recordation of all documents involved in consummation of the mortgage. Its mainstream adoption isn’t so far-fetched. Many lenders anticipate they’ll be closing mortgage loans entirely online in the next several years.

Compliance measures like TRID will tend to drive migration to electronic and virtual platforms. With the Federal Housing Finance Agency set to compel electronic delivery of the Uniform Closing Dataset next year, it’s all the more likely that lenders will want to manage its bureaucratic requirements with a virtual data solution involving all of the documentation generated in the closing process.

A complete eClosing anticipates at least the following lender driven elements:

>> Mismo 3.3 compliant XML data and doc exchange metrics

>> Bi-directional integration with leading LOS systems

>> Integrated eDelivery of borrower LEs and CDs

>> Continuous compliance and TRID tolerance monitoring for all disclosures and closing packages

>> eSignature architecture for all closing docs and CD

>> Automated event logging and audit train throughout the disclosure and closing process

>> Real time chat and instant message portal for Lender interaction with both the borrower and realtor, as well as doc prep and closing staff.

Regardless of whether one is simply contemplating a basic eMortgage or a complete eClosing, there are a wide variety of processes involved. For the purpose of this explanation, discussion will be limited in scope to the requirements to create documentation and apply electronic signatures. For the most part, the industry has adopted the eMortgage format and guidelines developed by MISMO as the accepted means of creating eMortgages. Fannie Mae and Freddie Mack have each published eMortgage Handbooks or Seller’s Guides which document their requirements for sellers of eMortgages.

Documentation Requirements:

Requirements surrounding the documentation are relatively straightforward. In the case of an eMortgage, Fannie and Freddie require that the Note (eNote) be in the form of MISMO SMART Document Category 1 (xml document) and that specific language is included in the eNote. MERS eRegistry requirements must also be met in order for the eNote to registered with the MERS eRegistry, as both GSE’s require this. Additionally, these investors require the Consumer Consent disclosure to have been provided to the borrower identifying the transaction as an eMortgage and obtaining their consent, and Freddie requires this document be retained as an electronic document in the file. The GSE’s permit the rest of the loan file to be paper based, resulting in a “hybrid” eMortgage, which are the most common form today.

Process Requirements:

The process requirements for an eMortgage are more complex. The basic process flow is:

1.) Electronically present and sign the eNote or other documents to be electronically executed

2.) Apply a tamperseal to the signed documents

3.) Close the transaction

4.) Package all the electronic documents in a form suitable for delivery, typically a “MISMO package”

5.) Register the eNote with the MERS eRegistry within 24 hours

6.) Transfer the eNote to a secure, approved “eVault” for storage

7.) Eventual transfer of the eNote to Freddie/Fannie (eDelivery)

At the highest level, a “click through” signature of the eNote, which satisfactorily meets the requirements of the law, is also sufficient for both GSE’s. At a lower level, each of the GSE’s has specific requirements, with some overlap, for applying a signature on an electronic document. Freddie is more specific in its requirements. Some of the requirements on how the signature must be applied include the following:

>> Not effected by means of video or audio recording

>> Not effected by means of object signatures such as biometrics or specialized signing pads (Freddie only)

>> Meet all ESIGN and UETA requirements

>> The signed documents/records must be “self contained” meaning all information necessary to reproduce the signed document is present

>> Some additional representative Freddie Mac specific requirements:

A.) Each document must be individually reviewed, signed, and modified by affixing all required signatures prior to moving on to the next document

B.) All signing parties must be physically present in the electronic closing location at the time of signing

C.) Signers must validate their credentials in the closing system by entering their user IDs and passwords

In Summary

TRID has dramatically changed the real estate closing process. Roles and responsibilities have shifted, the average time to close has risen significantly, and there is increased pressure from the Consumer Financial Protection Bureau (CFPB) to put the consumer first in the transaction. In order to meet the CFPB’s consumer-first mandate, real estate service providers need to adopt and implement “state of the art” digital closing platforms and conduct fully electronic mortgage closings (eClosings). It will provide ease and cost efficiency for the borrower, more accurate data management for the lender and an auditable electronic ability to examine the transaction and see what actually happened if a regulatory audit occurs.

About The Author

Michael L. Riddle
Michael L. Riddle is the managing director of Mortgage Resources Group, LLC., responsible for the overall operations of the firm. He guides the teams within the firm that develop and deliver “best in class” compliant disclosure and documentation systems to single family mortgage lenders throughout the country. Mr. Riddle is the co-founder and managing partner of the Middleberg Riddle Group, one of America’s preeminent mortgage banking law firms and, in that role, has spent much of his 40 plus year professional career providing advice and legal counsel concerning regulatory compliance, enforcement and litigation to clients including banks, mortgage lenders, insurers and related financial service entities.

Grading The CFPB

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Many in the industry have rebuked the work done by the Consumer Financial protection Bureau, but their work is certainly needed. The best case of the CFPB’s successes and failures can be seen in their handling of TRID. The initial rule lacked the specificity needed for it to be adhered to. As a result, the CFPB extended the deadline from what was August to October. That decision was met with a lot of adulation by the mortgage industry.

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At the time, MBA President and CEO David H. Stevens on news that the CFPB would delay enforcement of the new TILA-RESPA Integrated Disclosure (TRID) regulation, said, “MBA welcomes the news that the CFPB will recognize the good faith efforts of lenders to comply with TRID by delaying enforcement for a period after the new rules go into effect on August 1st. After speaking with Director Cordray, I believe the Bureau has listened to the input of MBA as well as other stakeholders about how best to enforce TRID. With so many difficulties around integrating systems, the industry needs flexibility to ensure consumers do not incur costs or lose home sales due to unforeseen problems. This enforcement grace period is a win/win for the industry and consumers alike.”

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So, that’s it, the CFPB gets it right, right? Not so much. The new rule was still too ambiguous for the industry to fully embrace. This development prompted the CFPB to roll out what many are calling TRID 2.0. In discussing this move, Rob Nichols, President and CEO of the American Bankers Association, welcomed this new version of TRID. Nichols said, “We appreciate Director Cordray’s responsiveness to our concerns about the CFPB’s Know Before You Owe rule. The agency’s interim steps and guidance efforts are welcome, and we agree that several issues will be best resolved in the rule-making process that is being initiated. We are particularly pleased that the notice of proposed rulemaking is on a fast track, which will accelerate and strengthen strong compliance regimes. Many of the elements the industry identified for clarification or amendment were developed in ABA’s compliance working group meetings, and we look forward to the opportunity to continue sharing banker feedback with the CFPB.”

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Similarly, Pete Mills, Senior Vice President of Residential Policy and Member Services at the MBA, added, “MBA is very pleased with CFPB’s letter [to adjust TRID] and believes the approach laid out should provide a swift path to issuing a final rule that will give lenders, the secondary market and consumers the clarity and consistency of disclosures the market needs. In the meantime we appreciate that the Bureau’s “diagnostic period” for the Know Before You Owe rule will continue to accommodate good faith compliance efforts. Finally, we look forward to continuing to work with the Bureau on this and other issues in hopes of protecting consumers and strengthening the real estate finance industry.”

So, it seems like the CFPB gets kudos for first delaying the deadline and then making changes to the rule, right? Not really. Michael Cremata, Corporate Counsel at ClosingCorp, points out, “With regard to TRID 2.0, my sense is that most commentators and industry trade groups are a bit underwhelmed by the CFPB’s proposed amendments. This is not, frankly, too surprising to me because I think a lot of people in the industry had unrealistic expectations about what these amendments were going to do.

“Cordray made clear in his letter announcing the proposed amendments, back in April, that they would be aimed at merely “incorporating informal guidance” and “clarifying” certain parts of the text of Regulation Z. Nonetheless, there were a lot of people in the industry who seemed to be expecting the CFPB to make substantive changes with these amendments, and even to reverse some of their previously-stated positions.

“A good example of this is the controversy surrounding TRID’s treatment of simultaneous issue title insurance premiums,” continued Cremata. “TRID, of course, requires that full (undiscounted) title premiums be disclosed on the Loan Estimate, and folks in the title industry have been fighting the CFPB on this ever since the proposed rule was first introduced in 2012. Repeatedly and consistently, the CFPB has stated that, despite all the concerns raised by providers and trade groups—that it’s not accurate for the majority of transactions; that it conflicts with state law; that it harms consumers by decreasing their likelihood of purchasing owner’s title—they believe that disclosure of the full title premiums on the Loan Estimate is in the best interest of the consumer. The CFPB has really never wavered from this position, yet, there were still a lot of people in the industry who were optimistic these amendments would modify TRID’s treatment of simultaneous issue rates. I think that optimism was, unfortunately, misguided.”

Does that mean that the CFPB gets a failing grade for TRID 2.0? No necessarily, adds Cremata. “I think the CFPB deserves a lot of praise for the breadth of changes covered in what the amendments describe as the “more minor changes and technical corrections.” These changes might not be headline-grabbers, but for those of us who are in the trenches day in and day out, trying to design products and processes for preparing closing documents, calculating fees, curing tolerance violations, etc., they are tremendously helpful. I commend the CFPB for answering calls to memorialize much of the informal guidance they have provided in the past, and the comprehensiveness with which the amendments accomplish this is truly impressive.

“I would encourage anyone involved in the mortgage origination progress to carefully review these portions of the amendments, because they do a good job of highlighting what are some of the most difficult issues lenders need to solve with regard to TRID. I think they also highlight just how complex—and daunting, really—TRID compliance is for lenders, and therefore how important it is to implement good processes and technologies to help solve these challenges.”

Prominent executives like NAMB President Rocke Andrews, CMC, CRMS voiced his support of TRID 2.0. Andrews said, “NAMB is pleased that Director Cordray and the CFPB have taken steps towards making adjustments in the regulatory text of the Know Before You Owe rule and look forward to participating in any upcoming meetings to further discuss the rule,” said Andrews.”

So, it’s safe to say, that how the CFPB handled TRID is up for debate. So, what’s next for the CFPB? Next CFPB will set its sights on HMDA. I would suggest that maybe the best way to grade the CFPB is not in its rulings, but in the impact that its rulings have had on the mortgage industry.

John Levonick, Director, Regulatory Compliance at Clayton Holdings, put it this way: “Through TRID and the HMDA regulations, the subtext of the CFPB’s approach to regulation is three fold: 1) educate consumers (TRID); 2) force technology advancement and adoption in financial services (TRID and HMDA); and 3) create an environment of responsible lending through a data driven supervision model (HMDA). The CFPB understands that the mortgage lending industry has been particularly slow to adopt new technology over the years, as compared to other industries, and has not had ample incentive to break away from antiquated processes and a patchwork of proprietary and third party technology. This new line of regulations from the CFPB is creating a Darwinsitic paradigm by opening the door for new innovation, forcing organizations to be responsive to change. “

So, if the CFPB is prompting industry innovation, I personally think that’s a good thing and they deserve some credit.

About The Author

Tony Garritano
Tony Garritano is chairman and founder at PROGRESS in Lending Association. As a speaker Tony has worked hard to inform executives about how technology should be a tool used to further business objectives. For over 10 years he has worked as a journalist, researcher and speaker in the mortgage technology space. Starting this association was the next step for someone like Tony, who has dedicated his career to providing mortgage executives with the information needed to make informed technology decisions. He can be reached via e-mail at tony@progressinlending.com.

The CFPB Has To Listen As Well

There is a lot of pressure on the industry to adhere to the policies of the CFPB. But what happens when those policies aren’t clear? Guess what, in this case, the CFPB should listen to the industry. For example, The Association of Mortgage Professionals has called upon both the Consumer Financial Protection Bureau (CFPB) and Federal Housing Finance Agency (FHFA) to further clarify the “Know Before You Owe” real estate disclosure forms. NAMB is asking the CFPB and FHFA to include a new line item that clearly states the guaranteed-fees (G-fees) from Fannie Mae and Freddie Mac and Loan Level Price Adjustments (LLPAs). NAMB is seeking further transparency in the mortgage process as both the G-fees and LLPAs are currently incorporated into underlying rates paid by borrowers at the closing table.

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“NAMB supports the removal of LLPAs going forward because of the increase in mortgage credit quality and improved industry risk management practices,” said NAMB President Rocke Andrews, CMC, CRMS in the letter. “We ask the agencies to go a step further and require disclosure of these fees to consumers. In the alternative, provide mortgage market participants a regulatory safe harbor framework to voluntarily disclose these fees to consumers.”

In a letter dated April 28, 2016, CFPB Director Richard Cordray acknowledged complaints and concerns relating to its “Know Before You Owe” rule, also known as the TILA-RESPA Integrated Disclosure (TRID) rule, and stated its plans to seek input from industry trade groups on making updates to this federal policy.

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“The CFPB should use this opportunity to disclose to the consumer the hidden tax G-fees represent,” said Andrews. “Such disclosure will help consumers understand, in certain cases, why their rate is higher than normal and help consumers make better decisions. Consumers deserve to know that a portion of the cost of financing a new home will be used to finance federal spending not directly related to homeownership.”

The CFPB has targeted a July 2016 release for the revised “Know Before You Owe” disclosure.

About The Author

Tony Garritano
Tony Garritano is chairman and founder at PROGRESS in Lending Association. As a speaker Tony has worked hard to inform executives about how technology should be a tool used to further business objectives. For over 10 years he has worked as a journalist, researcher and speaker in the mortgage technology space. Starting this association was the next step for someone like Tony, who has dedicated his career to providing mortgage executives with the information needed to make informed technology decisions. He can be reached via e-mail at tony@progressinlending.com.

Closing Problems Lenders Can’t Control

It has been nine months since the TRID disclosure requirements were activated. During that time period the industry has had the opportunity to resolve issues such as the potential for delays in loan closings, problems with accuracy of the disclosures and the corresponding ramifications. Recently issues emanated from the secondary market concerning the potential of assignee liability for secondary market investors.

While all of these issues are generating numerous news articles and commentaries denigrating the requirements, forcing lenders to delay closings and increasing the overall costs of originating a loan, it has also exposed the fact that our partners in this process are less than knowledgeable, and in many cases, downright ignorant of the new disclosure requirements and documents. I had the pleasure, or rather the displeasure of experiencing this over the past several months as my daughter and her husband sold one house and purchased another. We all recognize that these new requirements are intended to provide accurate financial information to the consumers in order to ensure that they “know before they owe”, but is that really happening. Here is just one example of what borrower’s experience.

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My kids sold their then current home with no problem and found a home that they wanted to buy. Their loan officer was very knowledgeable in presenting various mortgage options and provided guidance to them for completing the application and they were able to understand the LE when it arrived. Now here I must admit that my daughter, having lived with a mortgage banker for most of her life, was much more knowledgeable than other borrowers. None the less, they found the LE very easy to understand.

The trouble began when the home inspection occurred and the inspector found a problem in the air conditioning. While this was obviously the sellers’ issue, the seller’s realtor increased the sale price of the property to cover the cost and told the kids that they could pay it with a personnel check at closing. Furthermore, she stated that if they didn’t do it that way, the lender was going to have to reissue the LE and that it would delay closing. Her reason she explained was because lenders had eight years since the mortgage meltdown and still couldn’t follow the new requirements. Of course, that didn’t happen.

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Once the loan was approved and scheduled for closing this same realtor called them directly to “warn” them that they better make sure their buyer had received her closing disclosure and that it was accurate or they would not be able to close on their current home. Meanwhile they had received their CD from their lender and using the amount they would have to pay, had made all the final arrangements. The call about the buyer’s CD created a panic when they were not able to reach their buyer and the buyer’s agent didn’t seem to know anything about a “required closing disclosure”. They finally got this straightened out only to get a call from the closing attorney with their “final figure” which of course did not match the CD. It seems that he had taken it upon himself to charge them for different “inspections” that their lender had not required or included in their fees because they were actually the sellers. After much back and forth discussions with threats from both the realtor and the closing agent, the CD was deemed correct. Confident that everything was now “OK” they proceeded to closing only to find out that the realtor fees were five thousand less than they had been told. So at the end of the day, despite the lender’s requirements to give these borrowers’ the exact amount of their closing costs, the overall amount required at closing was wrong. More importantly, it was wrong not because of the lender but because of realtors and closing attorneys. And here in lies the problem. The fact that these entities are ignorant of TRID requirements, have no regard for what is best for the buyer but are only interested in getting paid, and have no oversight but are free to manipulate buyers and borrowers, negates anything the lender is required to do. While I have been told that the realtor lobby is the strongest one on Capitol Hill it is time to stop harassing lenders and start requiring that these parties bear their responsibility in ensuring that consumers do “know before they owe.”

About The Author

Rebecca Walzak
rjbWalzak Consulting, Inc. was founded and is led by Rebecca Walzak, a leader in operational risk management programs in all areas of the consumer lending industry. In addition to consulting experience in mortgage banking, student lending and other types of consumer lending, she has hands on practical experience in these organizations as well as having held numerous positions from top to bottom of the consumer lending industry over the past 25 years.

Not Everyone Had Trouble With TRID

Fidelity Bank is a lender on the move. Started in 1905 as a small mortgage company in Wichita, Kansas, it is now a full service bank with branches throughout Kansas and Oklahoma, and which processes loans in all 50 states. A company with this much going on might be thrown off track by a regulatory change as large as TRID, but not Fidelity Bank – they were ready.

They learned about TRID developments early and often. As a result of their collaboration with the Compliance Department at Mortgage Builder, Fidelity Bank received frequent updates along with instructions on what to do about this complex regulatory change. “Mortgage Builder is on top of compliance,” said Barry Park, VP at Fidelity Bank. “They worried about TRID so we did not have to.” With timely and insightful updates they were able to fully prepare and begin testing well in advance of the go-live date.

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In the two years leading up to the TRID deadline, much activity was happening at Mortgage Builder and at Fidelity Bank. Mortgage Builder made significant modifications to its LOS platform to fully support TRID by the original August 1, 2015 deadline, but that was only half the task. Mortgage Builder spent a comparable amount of time with their customers helping them to prepare with training, workshops, conferences, and extensive online resources. “We used them all,” added Barry.

By October, the extended deadline, Fidelity Bank was more than ready and the roll-out went smoothly. The loan officers didn’t see any changes to their day-to-day routines and the back-office employees were well trained. Despite initial predictions, Fidelity team members found that they were closing loans in the same amount of time as before. In the event that they had any questions, Mortgage Builder was always on hand to provide answers and help with audits.

Barry, who has been in the industry for 18 years, knows he made the right choice in LOS vendors seven years ago. “With Mortgage Builder I feel ahead of the game. Regulatory changes are a fact of life and I know this bank will be as prepared for HMDA as we were with TRID.” He also looks to Mortgage Builder as a source for advanced mortgage technology, which is continuously helping him close more loans with less work by automating tasks that he and his team were used to doing by hand. His only comment: “We are spoiled.”

Moving forward, Fidelity Bank will continue to rapidly grow, and will be focusing on attracting more borrowers and establishing themselves in more cities. With compliance a non-issue and constant advances in loan automation, they will have no trouble succeeding.

About The Author

Kelli Himebaugh
Kelli Himebaugh is a member of the Executive Team at PROGRESS in Lending and is National Account Executive at VirPack, a leading provider of document management and delivery technology to the mortgage banking and financial services industries. She is also a member of the Executive Team at PROGRESS in Lending Association. Kelli is a proven sales leader with more than 20 years of housing finance experience and 10 years of mortgage technology experience. Kelli can be reached at kelli.himebaugh@virpack.com.