TRID Turns 5: What We’ve Learned About Successfully Managing Mortgage Origination Compliance
Five years ago, big changes to federal requirements for the mortgage loan disclosure processes produced great anxiety in the lending world. Lenders feared they were facing an onslaught of complicated, new compliance demands that would inflate the cost and risks of every loan origination and leave them perpetually at risk of penalties.
The TILA- RESPA Integrated Disclosure (TRID) rules were instituted in late 2015 and administered by the Consumer Financial Protection Bureau. TRID consolidated four existing disclosures required under TILA and RESPA for closed-end credit transactions secured by real property into two forms:
- The Loan Estimate (LE) replaced the Good Faith Estimate (GFE) and initial Truth-in-Lending Disclosure, which are provided to consumers at the start of the transaction and include both initial disclosures and timing restrictions (must be provided within 3 business days from the date the application is received)
- The Closing Disclosure (CD) replaced the HUD-1 Settlement Statement and final Truth-in-Lending Disclosure, providing consumers the required 3 days to review all final terms and conditions and seeking to prevent borrowers from signing documents under duress
Lenders’ anxiety around these new rules was based on the lack of clear guidance from the CFPB, the myriad interpretations by varying investors, and potential penalties associated with non-compliance. Among other worries, lenders feared the CFPB’s ability to audit, levy substantial fines, limit business practices and disclose violations to the public. Lenders also worried about how they would take responsibility for disclosures that were typically handled by title companies.
Their fears were not completely misplaced. TRID has increased the cost and work involved in mortgage origination. However, five years since the new TILA-RESPA integrated disclosure rules (TRID) took effect, lenders and investors have largely made their peace with the requirements. Through the years, lenders have learned from their mistakes and reached a place where the rules, while never easy, are more clearly defined, familiar and manageable.
“We don’t hear as much about the headaches as we used to,” said Shannon Howard, who manages mortgage compliance review at MetaSource. “There used to be a lot of sleepless nights, but I think over time, everybody has come around to being familiar — not only with the disclosures, but with the regulations behind them.”
Five Years Later, Some TRID Hurdles Remain
At nearly 2,000 pages when they were introduced, the rules have been updated over the years. One of the most welcomed changes was a 2018 amendment that eliminated the so-called “black hole”, which established strict time limits for the issuing of revised loan estimates. These timing regulations led to penalizations for a change of circumstances out of lenders’ control.
The 2018 amendment acted as a light in this black hole, allowing lenders to reset the limits around tolerances when they learn of a changed circumstance prior to closing. “Getting rid of the black hole left a lot of lenders very happy,” said Howard.
Despite this positive change, closing disclosure timing and cost calculation “tolerance” limits continue to be major obstacles to TRID compliance, based on an annual analysis of the most frequently occurring mortgage quality control issues identified by MetaSource auditors.
“We are still seeing tolerance and timing fails frequently. Our annual analysis showed both to be among the top 10 findings in 2019,” said Howard.
Many things can potentially happen at closing. Sellers may be called upon to make concessions. There can be escrow changes. Other APR-related changes, tolerance issues and loan amount revisions can arise including changes to the APR that exceed allowable thresholds. Under TRID, the lender is required to re-disclose such changes to the borrower and wait three days before closing the loan if there are changes to the APR, the loan program, or the terms around pre-payment penalties. This is where many of the tolerance fails and timing issues arise.
Since the understanding of TRID has evolved, another obstacle for lenders to overcome has developed. Today, several lenders struggle to understand the steps required to align a new Loan Origination System (LOS) with TRID requirements.
“With changes in software platforms, many lenders get caught short when a recent system migration has not been fine-tuned for TRID compliance,” Howard said.
Brady Meadows, Strategic Account Manager at MetaSource, agreed. “I think companies put too much trust in their loan origination systems to do it correctly,” he said.
In the TRID Trenches: Communication, Automation and “Tweaks”
Wyatt Austin, Chief Compliance Offer at First Colony Mortgage, has been on the front lines of TRID since it took effect. In more than eight years in mortgage lending at First Colony Mortgage in Utah, Austin has experienced the initial anxieties around the new federal requirements and the evolution of TRID attitudes and practices first-hand.
“I think most of the fear was around the technical aspects of it,” Austin said. “Obviously, it’s a huge regulation. It shifted more of the burden onto the lender. There are hundreds of technical aspects that you need to get right.”
For the most part, Austin said, the industry has managed to get it right, especially when it came to tackling those first big challenges. But he stated that the stumbling points are in the more granular requirements, particularly as the market has grown.
“Everybody is at max volumes right now,” Austin said. “Bringing new employees on and making sure they’re doing things right – that’s a challenge.”
Among the most important things a lender can do to ensure compliance, he says, is to close any gaps in communication processes. Like many mortgage companies, First Colony created a new department dedicated to TRID compliance. Over the years, the department has added employees and narrowed its focus to handling only the initial disclosures. As the responsibilities have divided, communication among departments is even more crucial.
Automation is Critical to TRID Compliance
According to Austin, a carefully structured system of automation is the most critical tool for TRID success.
“What has helped the most is to get as much of that automated as we can,” he said. “We’ve had to rely hugely on technology and on our loan origination software.”
Echoing the observations of the MetaSource team, however, Austin noted that automating the process required significant IT support and “tweaking”. First Colony had to build in the “edits and hard stops” needed to recognize and alert users when changes that affect the disclosure requirements occur.
“At first, we relied heavily on the loan officer,” he said. “Now, we rely more on reports and automation to alert the doc team or the compliance team.” But he cautions, the process required “hundreds and hundreds of hours” in tweaks to the LOS, despite the fact that his team uses “one of the more robust LOSs available.”
First Colony Mortgage is a long-time MetaSource client, and Austin mentioned that his team also relies on MetaSource post-close QC auditing to keep its processes buttoned down.
Shrink Your Worries and Grow Your Business with Mortgage Software and Compliance Help
Are you still struggling to navigate TRID in 2020, five years after it took effect? According to the experts, the solution to your problems lays in expertise, communication, and automation.
At MetaSource, we take pride in combining all three components into our QA services. Our team of mortgage QA experts can help you fine-tune your TRID compliance processes with a variety of audits, consulting, and software systems. Our solutions were built to help you achieve the accuracy and efficiency you need to put compliance worries to rest and focus on growing your business.
Give us a call or click on the link below to learn more about MetaSource’s software and services for improving mortgage compliance.