TRID violations

A “TRIDmas” Carol: Past, Present & Future Mortgage Regulation

There’s nothing quite like the threat of a company audit to put one in a foul mood. Financial industry professionals may be feeling especially Scrooge-like this holiday season, at least when it comes to TRID regulations.

But before muttering “Bah, humbug,” take a broader look at the ‘Know Before You Owe’ rule.

The Ghost of TRIDmas Past 

When the CFPB informed the industry in 2013 that TRID was on the way, it signaled a changing environment.

  1. The CFPB began fining large financial institutions for violations.
  2. The configuration of core banking systems couldn’t efficiently integrate new processes.
  3. Changes to the loan file and the new timing for file delivery posed many challenges for those accustomed to adjusting the loan on the day of closing.
  4. The shift in liability to the lender created a necessary collaboration process among loan participants and a need to inspect the loan on a granular level, neither of which the industry could provide at the time.
  5. Compliance violations, errors in the loan file, miscategorized QM loans and other problems contributed to RMBS investors either hesitating to buy loans on the secondary market or sending them back to originators as buybacks. TRID became another layer of regulation that would add to this burden.

These were massive challenges for the mortgage industry. The warning from industry leaders that “this is more than a form change,” seemed to fall on deaf ears until the implementation date, August 1, 2015, drew closer. The industry pleaded for an extension, and the CFPB delayed the rule until October 3.

The Ghost of TRIDmas Present

It’s too early to know the extent of TRID’s impact, but lack of technology and poor communication appear to be general culprits behind all the frustration.

TRID Impact On the Industry

In an article from Mortgage Professional America, Russ Glines spoke of the concerns: “We’ve had seven closings so far and they haven’t gone as well as we’d hoped. […] As a broker, we have to deal with several lenders and each of those lenders has a different way of interpreting the new rules.”

The new rule has contributed to delayed loan closings, collaboration issues and compliance risks. Investors in the RMBS market are also becoming more stringent when it comes to proof of compliance. They want to see as much evidence as regulators have access to that the loan is clean and error-free — if not more.

These issues aren’t new to the financial industry, but TRID has brought them into the regulatory light for all to see.

Learning From the Dodd-Frank Regulation

But those who take the time to learn from Dodd-Frank and innovate accordingly will win in the long run. A Mortgage News Daily article observed: “For those companies who have established and cohesive leadership teams, TRID implementation has been much easier than most. […] Companies who have put in the time to create new origination opportunities through technology and systems are capitalizing on the unpreparedness of others.”

The Ghost of TRIDmas Future  

The CFPB is highly data driven and, as such, they create laws based on research.

HMDA Regulations

When the new HMDA rule was announced as part of Dodd-Frank, the industry was just as unprepared as it was for TRID. It isn’t a coincidence that the CFPB put the ability to track people on the loan file in the TRID form. The regulator wants to know who participated on the loan, to give them access to HMDA information.

It isn’t hard to see where a path like this will lead. It is reminiscent of the scene in “A Christmas Carol” when the Ghost of Christmas Future leads Ebenezer Scrooge to the cemetery where Scrooge says, “Before I draw nearer to that stone, tell me! Are these the shadows of things that must be, or are they the shadows of things that MIGHT be?”

It is time to learn from the warning signs that appeared in the months leading up to TRID and start preparing for this regulation today, or it will be difficult to prove to RMBS investors that loans on the secondary market are compliant.

Digital Mortgages As the Answer To Regulations?

How can it be done? Several have cited digital mortgages as the answer to TRID, and it may be the same for HMDA. Amy Swinderman, staff writer for Inman News, wrote, “The importance of lenders, title companies, settlement agents, real estate agents and others being able to collaborate to close a loan and communicate efficiently and effectively with each other is paramount to complying with Know Before You Owe.”

The Mortgage Industry Needs More Than Just Collaboration Technology

Digital mortgages are certainly one of the answers to the issue. Just collaboration, however, will not be enough to ensure compliance. There is a regulatory phrase called “disproving the negative” that investors will begin to apply to the loans they buy on the secondary market, especially once the new TRID loans are securitized. This means that lenders must not only prove the loan is compliant with TRID, but they must also prove the loan is not violating any compliance rules.

This holiday season, TRID doesn’t have to be a time-consuming, costly event. Though the task might seem insurmountable, the new rule can help the financial industry learn from its mistakes and push it to prepare better loans in the future.

Want to make your mortgage process easier and more accurate? Contact ATS Secured today.

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