May 2015, Issue 05
The TRID Effect
It's not quite time to panic just yet if you're not ready for TRID, but it's getting close. Hopefully you, your LOS vendor and document providers are all working diligently together to help you prepare to meet the new disclosure rules. October 3, 2015 will be here sooner than you think.
It wasn't all that long ago that all the fuss was about the new QM and ATR rules. Those changes were expected to have a devastating impact on mortgage lenders and how mortgage lending is done. Reminds me a little of the panic created over Y2K. Remember getting ready for that change? When all was said and done the bark was a little more than the bite. We experienced some minor problems, but all in all mortgage lenders survived, both Y2K and QM/ATR. People are still buying homes and lenders are still providing them financing. Life goes on.
Now we come to the TRID changes. Again the industry is all a atwitter about the problems that may result for lenders and consumers alike. However, in reality, when carefully analyzed, it seems these changes may actually benefits lenders and consumers. It all comes down to preparedness and communication.
The rules make it clear that the Lender, the entity providing the credit, is the one responsible for the timely issuance and accuracy of the two new disclosures; the Loan Estimate and Closing Disclosure. A lender may delegate their responsibilities to a Broker for the Loan Estimate or a closing agent for the Closing Disclosure, but ultimately, in the end, the Lender is responsible and accountable. I addressed some issues surrounding the Closing Disclosure in a prior newsletter (TRID: The Road Ahead). Let's take a look at the relationship and responsibilities of the Broker and Lender in issuing the Loan Estimate.
A Loan Estimate must be issued within 3 business days (usually not counting Saturdays) of a Broker acquiring the 6 items of a loan application. When issuing the Loan Estimate a Broker must enter the name of the intended end Lender, when it is known. They must also enter a Loan ID # which will be used to identify the loan throughout the transaction. This Loan ID number may not change. If the broker has not yet decided on the end Lender then the Broker must leave the Lender name and Loan ID # on the Loan Estimate blank. This may create some confusion with a consumer.
It is up to the Broker to adequately explain why these fields are left blank and when the consumer will learn of their end Lender. The Broker may shop around to find the consumer the best possible loan to fit their needs and when that is determined advise the consumer of the Lender. In the process of explaining this to the consumer, they can use this opportunity to tout this as one of the many benefits of using a Mortgage Broker. Further, they should explain that once a Lender and loan program is selected, the consumer will receive an updated Loan Estimate when their rate gets locked. The fees, costs and loan terms outlined on the initial Loan Estimate will not change, other than for any fees/costs/credits resulting from the rate lock. Other specific changes can occur that are outside the control of the Broker and Lender.
The key is in the communication between the Broker and the Lenders for which they originate loans. Once a broker issues a Loan Estimate, any Lender accepting that loan is bound by the timing, content, terms, fees, charges, and costs disclosed therein. Accordingly, Lenders and their approved Brokers must establish a system for the timely registration of applications and issuance of the Loan Estimates. Here are some options for doing so:
1. Allow the Broker to issue the Loan Estimate, indicating the Lender's name and an assigned Loan ID#, and disclose the Lender's fees and costs with a loan registration.
2. Have the Broker register all new applications immediately upon receipt and have the Lender provide the Broker with the Loan Estimate for issuance to the applicant, populated with Lender's name, ID #, fees and costs.
3. Have the Broker register the new loan and the Lender issue the initial Loan Estimate in their name with the Loan ID#, providing a copy to the Broker.
How each Lender decides to ensure the timely and accurate issuance of the Loan Estimate is up to them. The important thing is that they have a documented way to do it and the systems in place to ensure it is done correctly. Remember, in the end, the Lender will be held accountable. The Lender must ensure it is done right.
So what happens when a Broker has not decided on a Lender, or is not quite ready to register a loan at application? The Broker still must comply with the law and issue the Loan Estimate within 3 business days of their receipt of the application. In such a case the Broker must leave the Lender name and Loan ID# blank. The Broker must then ensure that the fees and costs disclosed on the Loan Estimate are those that would be acceptable to the Lenders with which they do business. Otherwise they, or the Lender, may have a problem when trying to close the loan.
Any Lender accepting the loan must accept the terms, conditions, fees and costs disclosed by the Broker. These cannot be changed with the registration. The only costs that may change are those directly associated with a rate lock, or a bona fide changed circumstance that was not known by the Broker prior to the registration. A new or corrected Loan Estimate may not be issued to correct a mistake or adjust for fees that were not disclosed at application but are required by the Lender getting the loan.
As you can see it is important that Brokers and Lenders have systems to quickly communicate criteria, rates, fees and costs associated with each loan program offered. Regardless of when the Broker decides to register the loan, the Loan Estimate must be acceptable to the Lender. Otherwise a Broker may have a loan for which they have no home, or one on which they must take a loss to have it registered.
When a loan does not qualify for a program offered by Lenders with which a Broker does business, the Lender or Broker must issue a loan denial indicating the reason for declining the loan. Be careful, these denials should not be issued for the sole purpose of creating a new application and corrected Loan Estimate. In essence, the denial should not be issued because the Broker made a mistake in disclosing the fees and costs on the Loan Estimate. Nor should the loan be treated as a withdrawal to allow for a new application and Loan Estimate. Such activity can get a Broker and Lender in trouble.
The new TRID rules put the onus on the Lender to make sure the consumer is treated fairly and receives the proper information about the loan terms, rates, fees and costs. It puts the Lender in control of the lending transaction, which is how it should be. It's up to each Lender to determine how they wish to handle this responsibility. Some can be delegated to lending partners, like Brokers and Closing agents, but ultimately it is up to the Lender to ensure compliance and quality. To do this, a Lender must have technology and systems in place to identify when they have a new application, ensure disclosures are done accurately and timely, and a loan moves through the process to close on time.
Do the things needed to manufacture a quality product and you will comply with the TRID rules, while reducing defects, delays, and your costs to originate loans. This will translate into happier customers, better performing loans and increased profits.
Communication and use of technology are the keys. Training, policies and procedures are needed so everyone knows what needs to be done. Pre-closing audits become much more important and will pay huge dividends. Trust but verify.
The game has changed; are you prepared to play differently? Check out some additional TRID Resources that can help.
Here's to continued survival in the new TRID world.
— 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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