TRID: Forcing Lenders to Rethink Process and Deploy Sophisticated Technology
(Mike Vitali is Senior Vice President and Chief Compliance Officer for LoanLogics, Trevose, Pa. He has been an EVP and Chief Risk Officer for a major national lender and is a frequent panelist at mortgage industry conferences.)
The TILA/RESPA Integrated Disclosure rules have forced lenders to rethink their processes and rely more on technology to originate loans more efficiently. To do this, smart lenders have implemented dynamic, sophisticated technology to help process, track and monitor loans during the origination and approval process in support of TRID compliance.
Another way to do this is to automate pre-close audits to quickly identify issues and flag them to be resolved as early in the origination process as possible. This helps to ensure TRID compliance, and for that matter, compliance with other regulations and lending requirements, as well.
The new regulatory environment has changed the mortgage business too much for the old standby, manual processes, or the “stare and compare” approach of auditing, to be effective. Lenders who continue to follow that strategy will experience an increase in the cost of originating a mortgage, leaving them less competitive and no further along in their goal of TRID compliance.
It’s just too time-consuming and difficult to manually identify errors and defects. Too much can be missed, especially under the time crunch of TRID and the dramatic growth in the number of pages of loan documents; several hundred pages to originate a plain, vanilla mortgage. More sophisticated loans require many more.
Lenders committed the time and resources necessary to generate the new forms that TRID requires, but that does not mean they can handle the new regulations. Compliance requires processes and procedures that ensure more than the creation of two new documents.
These disclosures must be issued within very specific time limits and be accurate to meet every detail required by the law.
Some of the more challenging requirements of TRID:
–A Loan Estimate must be issued within three business days of receiving the application. Under the new rules it is not that easy for a lender to know when they officially have an application.
–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 and intends to proceed.
–All loan terms and fees associated with the loan must be disclosed upfront.
–Revised loan estimates for allowable increases in fees must be provided within three business days after learning of a change. Only fees directly related to the change may be increased. Once this time passes, the lender is prohibited from charging the increased fee.
–Lenders must retain detailed documentation to evidence each change, when they became aware of it and what changed as a result.
–Once disclosed, a lender credit may not be decreased except as the result of the rate lock.
–The lender is responsible for providing an accurate estimate of all closing costs to the consumer for receipt no less than three business days prior to loan consummation. Providing the disclosure “too early” may result in a lender being prohibited from collecting any increased fees; “too late” and the lender is in violation of the law.
–Lenders need to be able to handle communications with various closing agents for any changes at the closing table so that an accurate final Closing Disclosure may be provided and utilized for the closing.
The business risks to lenders for failing to comply with TRID are severe. Aside from grave civil, monetary penalties, lenders that originate loans that don’t comply with TRID may find investors unwilling to buy those loans. This is a scenario that has already occurred and contributed to at least one lender’s demise.
This is an avoidable problem for those lenders who commit to migrating from their manual processes to one that deploys technology. That move can help them quickly identify loan defects, flag them for review, and correct them before their loans close. This is a significant benefit. If a defect is missed, there is a very good possibility that many of the loans in the lender’s pipeline may suffer from the same defect.
Technology makes it possible for lenders to build in safeguards to eliminate the possibility of closing loans with recurring defects and regulatory risks. The proper application and use of advanced technology will go a long way toward the manufacture of quality, compliant loans that will perform as expected and be saleable in the secondary markets.
Quality and compliance is more critical in today’s TRID world than ever before. This makes technology more important than at any time in the past. Without the proper checks and balances that sophisticated technology makes possible, lenders not only face heightened regulatory risk, but will find that they lag behind those competitors with automated systems–those that have already streamlined operations and reduced risk through their use of technology.
The response to TRID, to a remarkable degree, is marked by denial, anger, even an irrational opposition to process changes that can minimize the difficulties of complying with the regulation. There is little question that technology makes the challenges that TRID poses easier to master. Through the proper use of technology, compliance is simplified, productivity is increased, defects are decreased and profitability and customer service are improved.
Over the past seven or eight years, mortgage lenders have faced more regulatory changes than at any time in the history of the business. These changes serve somewhat as a catalyst to enhance their business practices and productivity. That trend continues with TRID.
TRID is the new catalyst for automated processes that must be incorporated into a lender’s workflow and business processes to reduce costs, realize efficiencies and gain competitive advantages.
Those who see the benefits of change and use technology to achieve these benefits will ultimately be the winners.
(Views expressed in this article do not necessarily reflect policy of the Mortgage Bankers Association, nor does it connote an endorsement of a specific company, product or service. MBA NewsLink welcomes your submissions; articles and/or Q/A inquiries should be sent to Mike Sorohan, editor, at msorohan@mba.org.)
