Unexpected Consequences

While everyone and their brother is eagerly denouncing the numerous issues associated with the TRID requirements including the associated costs to lenders and consumers, the uproar over delays in the process and delays in closing loans seems to have subsided. Now that we have experienced six months of working through the issues most individuals in the real estate community have come to terms with taking the extra time to close.

One unintended consequence was the recent uproar around TRID document requirements, specifically those having to do with the form itself. It seems that private investors became concerned about such things as font size and the width of the lines making up the boxes since they are exposed to civil liabilities if consumers want to sue them over these issues. However, as pointed out by members of the CFPB themselves, the chances of any judge allowing such a lawsuit to proceed are approximately nil. The CFPB even went so far as to issue a statement to calm down the market. Of course no one happened to mention that the alarmists were those due diligence firms that were conducting reviews and used this issue to increase their reviews to cover the tiniest of these issues; for an additional fee of course.

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There is however another consequence that doesn’t impact originations or the secondary market, but may result in having the greatest impact of all. It seems that many lenders are finding that when the loan is prepared for, or most often, when it returns from closing, there are TRID issues that need to be corrected. In order to make sure that these corrections are completed in the permitted time frame, loans are being checked and corrections made before their status is updated to close in the system. Why would this be a problem you ask? Well as in all processes, the output of one action is typically the input of the next. Therefore, it seems reasonable to assume that what happens after closing is likely to impact all of those post-close activities.

Let’s talk about servicing for example. Whether you are retaining servicing or selling it and transferring the loans to another servicer, getting the loan set-up in servicing as soon as possible is critical. If changing the loan status to “closed and funded” is delayed it can have a cascading effect on how well and how timely servicing is able to meet their notification requirements and get payment coupons to the borrowers. Long delays in “curing” these TRID problems could have a very negative impact.

Another example of this is Quality Control. While most think of QC as something that happens months after the loan is closed, it is in fact also dependent on the loan status being moved to closed. This has to be done within a short period at the beginning of the month immediately following the month in which the loans were closed. If the loan status change to closed is delayed, the sample selected may be missing a significant portion of the population from which to choose the sample. This can result in inaccurate totals of errors or result in reports that lead managers and/or investors to conclusions that cannot be supported by the population. This could lead to investor relationship issues and/or a pricing impact for some lenders. Based on these examples it seems probable that the impact of TRID will go a lot further and be a lot more expensive than was ever imagined.

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