September 2015, Issue 09
A Few Last minute TRID-Bits
By now, I hope you are ready for the TRID changes, or as called by the CFPB, the "Know Before You Owe" mortgage disclosure rule. If not, you really need to get cracking. The keys to readiness lie in technology, training and employee awareness. You'll need the systems to capture loan data and generate the new required forms. To me that's the easy part. Your IT people may not agree.
Be that as it may, the real challenges come once the new rules become effective. It is crucial that everyone in your organization is well aware of not just the new rules but of the effects of non-compliance. This is why lenders are so concerned about potential enforcement actions from CFPB, and others, once the rules become effective. Industry groups have been working with members of Congress to get a moratorium on such enforcement at least for 3 or 4 months after the effective date. Hopefully they'll be successful. Why you say?
Penalties - the Real Cost of Compliance
Lenders talk about the rising costs of compliance. Although true, these costs are money well spent. The penalties for even a single TRID violation can far outweigh any costs of compliance. This is not the time to be frugal when investing in what needs to be done to update systems, train staff and develop processes to ensure TRID compliance. This is time and money well spent. Think about it. The new rules for penalties for violations that may occur through any act or omission come in 3 separate tiers.
For any violation of a law, rule, or final order or condition imposed in writing by the Bureau, a civil penalty may not exceed $5,000 for each day during which such violation or failure to pay continues.
For any person that recklessly engages in a violation of a Federal consumer financial law, a civil penalty may not exceed $25,000 for each day during which such violation continues.
For any person that knowingly violates a Federal consumer financial law, a civil penalty may not exceed $1,000,000 for each day during which such violation continues.
As you can see the fines can get quite costly for non-compliance, even if the result of an honest error or a small employee mistake. This also includes the performance and activities of all agents, vendors and service providers utilized by the lender in originating the loan. The lender is the responsible party. This is why employee training, vendor management and the monitoring of their activities becomes so important.
Written Policies and Procedures
It's not enough to just comply, a lender must have in place the written policies and procedures to document what they do and how they do it, to satisfy CFPB requirements. When audited by the CFPB, they will check to make sure these policies and procedures exist and interview staff to determine if everyone is aware of and following these procedures. More importantly, your people need to be well trained and know what is needed to comply with TRID. Key items to consider:
The new Loan Estimate must be issued within 3 business days of receiving the application. Do all originators and support staff know what constitutes "receipt?" Will all Loan Officers turn in/register applications on time?
A lender may not collect any fees, with the exception of one for a credit report, until the consumer is in receipt of the new Loan Estimate. If the LE is mailed is it considered received 3 specific business days after mailing. No post-dated checks or an approval to run a credit card. Are controls in place?
Revised LEs for any loan term changes and/or fee increases must be provided within 3 business days after learning of a change. Do you have systems to identify when you are notified of a change and when the revised LE gets issued? What if someone goes on vacation or is out sick when a revised LE is due?
You must provide the new Closing Disclosure for receipt by the borrower at least 3 business days prior to consummation. Will your process end up delaying closings? Has your processing and underwriting staff been trained and do they have the tools to move loans through the process more quickly to avoid those last minute changes and delays?
Are you prepared to handle any changes made at the Closing Table? How will changes be communicated and revised CDs be issued?
Just because you've spent time and money to be able to generate the new forms doesn't mean you're ready to handle the TRID changes. The real challenge lies in making adjustments to your process and procedure to ensure your new disclosures are issued timely, and accurately. Once you pass the date for a required disclosure there is no going back; no do overs in TRID compliance.
If you miss a change, or are late with a revised LE, you lose the opportunity to collect that fee increase. The final LE must be issued at least one day before the initial CD. The CD is required no later than 3 business days prior to consummation. So if the LE is delayed, the CD gets delayed and the result is a closing delay. Not a good thing for any lender, realtor, builder or consumer. Don't kid yourself, no one is going to want to hear about your challenges resulting from the new TRID rules. When a closing gets delayed, it's going to be the lender's fault. You can bet on it.
A Cultural Change Required
As I've said before, and I'll say again, this is not just a rule change, it's a cultural change in how lenders do business. Let's face it, we were not very good at getting the HUD 1 to a borrower for review at least one day prior to closing, nor in getting the closing papers to the table the day before closing. We now need to do just as much, if not more when originating and approving a loan, and are required to complete pre-close audits AND get the new Closing Disclosure into the hands of the borrower at least 3 business days in advance. That is the real challenge, and one that successful lenders must meet head on.
To meet this challenge you need technology, systems and people all working together. Everyone needs to know the rules and understand their role in doing what needs to get done and in what timeframe to comply. As the old saying goes, a chain is only as strong as its weakest link. That can be anywhere throughout the process; employees, agents or vendors. Train, trust but verify, at every level.
By the way, just a little TRIDbit of info I was reminded of by a friend of mine at Radian. Disclosure requirements for rescindable transactions
Loan Estimate: May be provided to either applicant when two consumers are joint obligors with primary liability for the loan;
Closing Disclosure: Must be provided separately to each consumer having a right to rescind. This also means in a rescindable transaction with a non-borrowing spouse on title, the CD must be provided to the non-borrowing spouse and borrower separately, and both must be provided with a right to rescind.
If you already knew this, that's good. If not, now you know.
The game has changed; play different. Stay compliant my friends.
— Mike Vitali - SVP/Chief Compliance Officer
Mike Vitali is SVP/Chief Compliance Officer for LoanLogics. He has over 40 years of experience in all facets of mortgage lending. Just prior to coming to LoanLogics, he served for more than 12 years as an EVP and Chief Risk Officer for a major national lender. He also served as legislative chair for both the MBA of Greater Philadelphia and MBA of Pennsylvania, and is a member of several task forces dealing with compliance issues for the National MBA.
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This material is provided as a general information service by LoanLogics, Inc. and its applicable subsidiaries and affiliates ("LoanLogics"), and is not intended to provide financial, regulatory or legal advice on any specific matter. The information contained herein reflects the views of LoanLogics and sources reasonably believed by LoanLogics to be reliable as of the date of this publication. LoanLogics does not make any representation or warranty regarding the accuracy of the information contained in this material, and there is no guarantee that any projection, forecast or opinion in this material will be realized. Any links provided from outside sources are subject to expiration or change. © 2015 LoanLogics, Inc. All Rights Reserved.
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