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TRID start date is looming large over mortgage lenders

Wed, 09/30/2015

As the clock ticked down to Saturday’s deadline for the start of the new TRID consumer-disclosure rules, mortgage trade groups continued to lobby for more time.

Industry groups this week pressed federal regulators for an emergency rule that would grant lenders and other participants a four-month grace period from enforcement actions, including a safe harbor from private lawsuits.

This past Tuesday, the Mortgage Bankers Association (MBA) also released a survey of 71 of its members indicating a third had not had time to test their systems. Half of those surveyed also feared the transitional period will create problems with loan closings and add costs for consumers.

In a letter sent to its members on Sept. 30, the American Bankers Association (ABA) also cited a lengthy list of concerns, ranging from the late delivery of software systems needed to generate the new disclosure forms to a lack of clarity in the rules.

“Even at this late stage, many banks find it challenging to fully comply with these reforms,”  wrote ABA Executive Vice President Robert Davis in the letter.

The mortgage industry is also supporting a bipartisan bill that was passed by the House Financial Services Committee in July, which would extend a grace period through Feb. 1. This week, House Majority Leader Kevin McCarthy, R-Calif., said that bill would be introduced next week for a full House vote.

TRID requires the industry to produce new forms for the initial rate disclosure and during the closing process. The rule also mandates a mandatory cooling off period, which effectively locks the rates for a minimum of three days. TRID stands for The Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA) Integrated Disclosure rules. It is also known as the “Know Before You Owe” rule.

Although the forms are intended to be clear and readable, the entire system is data dependent and presents great technical hurdles for lenders. Essentially, the rule changes the entire way the industry discloses information to consumers. Lenders are jittery because their federal regulator, the Consumer Financial Protection Bureau (CFPB), hasn't been clear on when it will begin cracking down on the industry.

The industry says the bureau has also been vague about what constitutes "a good-faith effort to comply," the standard to which the CFPB intends to hold lenders during an initial soft enforcement period. 

But not everyone believes that TRID will be hugely disruptive after Saturday. TRID was originally supposed to start on Aug. 1, but has been delayed twice. According to the MBA survey, two-thirds of the surveyed members indicated that they were ready and expect no problems.

“It is just typical of this industry to push back on anything that is new,” said Tim Anderson, director of eServices at DocMagic, a document and compliance vendor.  “They don’t adapt well, especially if it is technology, and then [there is] the mistrust of this agency.”

Anderson predicted that TRID will cause no major issues for lenders for several months. The problems will likely only come in the latter half of next year, he said, when the bureau begins to audit the companies for compliance using an automated system that has yet to be implemented. Anderson said the penalties for failing such an audit are potentially severe.  

“You will eventually see these fines like there have been on the servicing side,” Anderson said. “They are minimum $1,000 a day. They are major fines, and we don’t know what they are going to audit.”

In testimony before the House Financial Services Committee this past Tuesday, CFPB Director Richard Cordray said the bureau’s approach will be corrective and diagnostic in the initial period, and not  "punitive."

He also said federal regulators will release a letter that explains their policy during the transitional period. 

CFPB spokesman Samuel Gilford confirmed that some written assurances for the industry will be coming.

“We plan to issue a letter in conjunction with other federal agencies that simply puts into writing what we’ve been saying for months. We are looking for good-faith compliance with our 'Know Before You Owe' rule,” Gilford said. 

As featured in the Scotsman Guide, October 2015