MBA, Trade Groups Raise Concerns over TRID Brokered Transactions

The Mortgage Bankers Association, in a letter this week to the Consumer Financial Protection Bureau, said as the Bureau assesses the effectiveness of its TRID Integrated Disclosure Rule it should reconsider provisions of the rule regarding wholesale creditors and brokered transactions.

In a separate letter, MBA and nearly a half-dozen industry trade groups raised similar concerns, saying TRID created substantial costs in compliance and asked the CFPB to take steps to ease the rule’s regulatory burdens.

The TRID Rule implemented the Dodd-Frank Act’s directive to combine certain disclosures that consumers received under the Truth in Lending Act and Real Estate Settlement Procedures Act in connection with applying for and closing on a mortgage loan. This past November, the CFPB requested public comment on a planned assessment of the TRID. As part of its assessment, the Bureau asked participants to comment on the feasibility and effectiveness of the assessment plan, recommendations to improve the assessment plan, and recommendations for modifying, expanding or even eliminating TRID.

In the MBA letter, MBA Senior Vice President of Residential Policy and Member Engagement Pete Mills outlined six areas of concern:

I. Loan Estimate Timing Requirements

MBA noted when a consumer’s application is received, the rule states that the creditor must provide the consumer with a Loan Estimate that complies with the delivery, timing, and content requirements of TRID. However, MBA said ambiguous language in the  rule creates confusion as to when the compliance timeframe begins. MBA said while the rule’s preamble supports an interpretation that holds that when an application is received by a mortgage broker and the LE is provided by the creditor, the three business day timeframe begins when the mortgage broker receives the application. “The lack of clarity on this issue is problematic and should be addressed by the Bureau,” MBA said.

II. Electronic Submissions

MBA said the Bureau should clarify when an application submitted electronically is received for purposes of TRID. “The mere act of submitting an electronic application should not be deemed received if the application was rejected contemporaneously and automatically because the data failed a validation rule,” MBA said. “Clarity on this issue would be helpful for all mortgage lenders who rely on electronically submitted applications.” 

III. Wholesale Creditor Liability 

MBA noted TRID’s approach to liability for Loan Estimate errors in transactions originated in the mortgage broker wholesale creditor model is “problematic,” noting inconsistencies in the rules Official Interpretation leaves creditors unable to correct mortgage brokers’ errors in the Loan Estimate, placing them a liability for those errors.

“Moreover, absent changed circumstances, wholesale creditors are unable to correct errors on broker issued LEs, meaning wholesale creditors are bound by the terms of a broker issued LE,” MBA said. “This effect of this interpretation is broad. Every wholesale creditor to whom the mortgage broker submits the loan application is bound by the terms of the initial broker issued LE. Each creditor will have to match the pricing and terms the mortgage broker first disclosed, even if the pricing disclosed was the result of an error. 

MBA noted the only recourse—which is unsatisfactory to both consumer and creditor—is to reject the application on grounds that it does not accept applications on the terms requested. “This issue could be resolved by withdrawing or modifying [the rule] to limit wholesaler creditor liability to instances where the LE was authorized by the wholesale creditor,” MBA said.

IV. Revised Loan Estimate 

Similarly, MBA said the rule holds that subsequent wholesale creditors are bound to the costs disclosed in the initial LE. They must either match the terms of the initial LE, or risk potential liability for TRID violations, or decline to accept the consumer’s file. “These results have foreseeably negative consequences for consumers in that they are likely to reduce the availability of options in a particular transaction and add otherwise unnecessary friction to the process,” MBA said.

MBA suggested a revised LE reflecting the new creditor’s estimates could resolve these concerns. “We believe the rule provides multiple grounds for the Bureau to provide such clarity,” MBA said.

V. Paid Outside Closing Reimbursement to the Broker on the CD 

MBA noted it is not uncommon for mortgage brokers to pay for certain upfront costs. “There does not seem to be a unanimous interpretation on how to best do this,” MBA said. “The Bureau should clarify exactly how these costs should be disclosed on the Closing Disclosure.”

VI. Contact Information Section (LE/CD)

MBA said the Bureau should clarify how the requirements of § 1026.36(g) and (k)—dealing with completion of the LE’s and CD’s Contact Information sections—apply to transactions involving a wholesale creditor. “We therefore encourage the Bureau to clarify that a wholesale creditor is not required to list a loan officer name and contact information on page three of the LE under the Lender section for Loan Officer and Loan Officer Contact Information,” MBA said. “Instead, the Bureau should allow wholesale creditors to complete these fields with contact information that corresponds with staff best suited to assist the consumer as determined by the wholesale creditor.”

The MBA/trade group letter noted similar concerns. “The regulatory reforms imposed by TRID required a complete overhaul of existing mortgage disclosure regimes and affected the entire origination chain; as such, these reforms were expensive and time-consuming, and they continue to impose burdens to this day,” the letter said.

The trade groups said the Bureau’s assessment should result in “identifying paths to reducing regulatory costs, facilitating compliance and assuring that the TRID disclosure scheme succeeds in informing and empowering consumers in the mortgage origination process.”

Joining MBA in the letter: the American Bankers Association, American Financial Services Association, Consumer Bankers Association and the Housing Policy Council.