February 2015, Issue 02
TRID: The Road Ahead Are You Prepared?
If you are in mortgage lending and not familiar with TRID you are in serious trouble. TRID is the acronym of choice to identify the new TILA-RESPA Integrated Disclosures, also known as the Loan Estimate (LE) and Closing Disclosure (CD). These are the long awaited and anticipated result of the CFPB's efforts to streamline the notifications required under both TILA and RESPA while providing more understandable information to the consumer about their mortgage loan and what takes place at the loan closing. Only time will tell if they are successful.
Aside from all the technology changes required by these new forms and related rules, the industry is in for a major cultural change. One for which we should be preparing for as diligently as we prepare for the implementation the new forms. I've sat on many a conference call, attended numerous seminars and had countless discussions about the new rules and related forms. Through it all, most of the questions raised and the biggest concerns revolve around the requirement for a lender to provide the consumer with the new Closing Disclosure at least 3 full business days prior to consummation of the loan. For all intents and purposes, that is really 3 business days prior to the closing (to be on the safe side). For me this is the biggest change.
The industry has adopted and updated many new forms in the past and technology providers have made system enhancements to support them, not the least being the last changes made to the GFE. I am confident this will happen again with the new disclosures. The basic information and timing of the new Loan Estimate mirrors that of the present GFE. The big change comes with the new Closing Disclosure. This form will replace the long used HUD 1 for conducting the closing. It seems to be raising some major concerns.
The first challenge.
The first challenge is that the lender, not the closing agent, will be responsible for providing the consumer with all closing information 3 business days prior to closing. The lender becomes accountable for all information contained in the CD, as well as the timing of its delivery, and will be liable under the law for any inconsistencies, or for a failure to deliver on time. The CD must include all lender and loan information, escrow data, lender fees and costs, all title charges, recording fees, and transfer taxes. These must be within the tolerances allowable under the rules for the fees and costs as disclosed on the Loan Estimate. It must also reflect buyer and seller adjustments, any adjustments to the seller's funds for lien pay offs or other costs, as well as the Realtor commissions and other charges. It must provide a full and accurate final accounting of the transaction, as is now being done by use of the HUD 1.
The second challenge.
This leads us to next challenge, the gathering of all this information by a lender in sufficient time to issue the CD when required. Let's face it; currently most closing packages get to the closing agent at best the day prior to closing, with many arriving the day of closing. That cannot happen under the new rules. Lenders need to start thinking now about how they will acquire the required information, from whom and when, so they can meet the "3 business day prior" rule. Otherwise they are in for some major closing delays which will not only infuriate customers, but cost major money in expired rate locks, late deliveries, and worst of all, lost business.
The third challenge.
Lenders must decide who will issue the CD to the consumer; the lender or the closing agent. Remember, regardless, the lender is ultimately responsible and accountable under the law for the timely issuance and accuracy of the CD. So either way there must be a system in place to handle the transfer of information to and from each entity to ensure an accurate, complete and timely CD to the consumer.
Meeting these challenges through technology.
Most lenders today process their loans using a loan origination system (LOS). This system houses all borrower and loan information and should handle the issuance of the LE. So if not now available, you should be speaking with your LOS vendor to understand how they will provide the fields/screens/portal necessary to enter the additional seller and title information. The portal should be accessible by the closing agent and Realtor, with limited system access, to enter/upload the required information.
Once this information is provided by the closing agent and/or Realtor the data will then be used by the lender's LOS to facilitate the preparation and completion of the CD. The Lender can then transmit the final CD, with all information completed, to the consumer and back to the closing agent.
If subsequent changes occur at the closing table that do not require a new 3 day waiting period, such changes can be updated by the closing agent in the Lender's LOS system via the portal. The lender can then review and process these changes releasing a revised CD back to closing agent.
An alternative to a portal could be the use of a standard form as a template for the information required from the closing agent. This could be provided to the "closing agent of record" at some point soon after the loan approval. They could then provide the needed data for manual entry into the lender's system. Either way the lender's system must be able to store the data and prepare the final CD.
If the lender decides to allow the closing agent to provide the CD, the process becomes reversed. The lender's system must be able to provide all loan details, escrows, fees and borrower information to the closing agent in sufficient time to allow the closing agent to prepare and issue the final CD, providing a copy to the lender. If a lender decides to follow this option they need to have adequate procedures in place for the transmission of the data, with an accuracy check of the CD before issuance by the closing agent, to ensure it is issued accurately and received by the buyer at least the 3 business days prior to the closing. Remember ultimately the lender is on the hook.
This is one more reason why lenders need to have systems, supported by technology, in place to monitor the loan origination, approval and closing process throughout the loan manufacturing life cycle. Loans must be reviewed and analyzed carefully before closing to ensure accurate loan information in compliance with the initial LE, as well as, complete, accurate information for the loan closing. This must all be done to allow for the issuance of the final Closing Disclosure so it is received by the borrowers at least 3 full business days prior to the closing. Each lender must determine now what needs to be done.
Cultural change required.
The closing culture must change. Things cannot be left to the last minute with the expectation that the closing agent will somehow make everything work out at the closing table. To do this, everyone must do their job correctly, completely and timely.
Loan Originators taking complete, accurate applications
Processors supporting the timely gathering and review of required documentation Underwriters carefully approving loans in time to allow for conditions to be cleared, additional required information collected and the CD issued on time.
Someone (you decide) reviewing and issuing the new required Closing Disclosure timely and accurately.
No more pushing the loan down the line figuring that "someone else will do it". The *someone else* is YOU! Everyone involved in the transaction must work together for the process to be successful. Communication, analysis and documentation are the keys. If there was ever a time and a need for teamwork, it's now.
Get ready for TRID; coming soon to a closing near you.
— 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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