A chief is a man who assumes responsibility. He says, “I was beaten.” He does not say, “My men were beaten.” – Antoine de Saint-Exupery
Find someone who assumes the blame for subordinates’ mistakes and you have found a true leader.
The Consumer Financial Protection Bureau (CFPB) has created many leaders among lenders with the new TRID rule it implemented on October 3. The regulation not only shifted liability for loans to lenders, but also ushered in a host of fundamental changes to the mortgage industry. These include, but are not limited to: new disclosure forms, restricted timing requirements around the new forms, tighter tolerance levels and a need for collaboration among the main participants on the loan file.
Minor Violations In a Mortgage File Still a Major Concern
When the money in a mortgage transaction is separated from the data and documents, it lends itself to TRID violations at the granular level. A recent article reported that 90 percent of loans surveyed were found with TRID violations.
The Heavy Burden of Lender Liability
Even if this number was lowered to 20 percent to illustrate consistent TILA/RESPA issues found prior to TRID, it still means one out of every five loans will have a violation. This article states that Fannie Mae is considering buying these loans for a price called a ‘risk fee,’ or two-four percent of the loan amount. If the average purchase price of a loan is $250,000, every noncompliant TRID loan will cost the lender somewhere between $5-10,000 dollars.
To broaden the scope, on average a typical loan officer should close $1 million per month, which equates to $18-36,000 in fees per month per loan officer.
“It’s not only banks that have to adjust,” Terry Moore from Accenture said in this Housing Wire article. “So too will appraisers, title companies, settlement agents and others involved in mortgage transactions. If these other parties are not ready to support the new changes immediately, the closing process will not go smoothly.”
However, if the closing process does not go smoothly or noncompliance is found in a loan, the lender is liable — not appraisers, title companies or settlement agents. This puts an enormous amount of pressure on the lender to oversee the loan process from application to close, and ensure other participants are performing adequate due diligence.
Wholesale Lenders and TRID Compliance
Wholesale lenders in particular seem to be facing the most challenges implementing the new rule. Robert Lotstein, managing attorney of Lotstein Legal in Washington, stated in this National Mortgage News article that “Wholesale is a weak link in the rule, because the rule says the least about the interaction between the wholesale lender and the mortgage broker.”
Andy Arculin, former senior counsel at the CFPB, said in a recent webinar hosted by ATS Secured that the most challenging aspect of TRID for wholesale lenders is the front-end application intake to loan estimate stage.
“Make sure you know that they are actually complying with the timing requirements and producing the LEs on time, and that the estimates they are providing are good and based on the same information you would use,” Arculin said. “Because you’re ultimately going to have to honor the estimate they’ve given and will be held liable for the disclosures they’ve given.”
Private Mortgage Investors Don’t Want TRID Liability
Accurate disclosures are not just important because of regulatory oversight, but for a loan’s viability on the secondary market. Mortgage investors are becoming more aware of the liability transferred to them once they buy a loan. If the loan has any indication of error or noncompliance, they have the power to push the loan back to the loan originator. RMBS investors are going to want more assurances that loans are clean and compliant at a granular level, or they may not buy.
Smart lenders are now taking initiative to put their loans through a fine-tooth compliance comb. That means being able to record all communication between the parties involved in the loan process, as well as actions taken. The loan has to be one file that all appropriate parties can access. This is what ATS Secured can provide.
ATS Secured Can Help Protect Lenders With TRID Compliance Software
For each loan closed on our network, we charge $250, which includes the cost of settlement. With five loans per month that’s only $1,250, compared to Fannie Mae’s fee of $36,000.
It makes more sense to be proactive and protect the loans from TRID violations as they are originated, instead of taking a reduction in price later. ATS Secured is indemnified through Lloyd’s of London. Our business models advocate collaboration, transparency and ease of use, along with audit trails for regulatory purposes.
This new TRID world is making leaders out of every lender, as they now carry liability for the other mortgage participants’ mistakes. The coming year will show how they deal with this new challenge, and what tools they use to help them succeed.
Want to make your mortgage process easier and more accurate? Contact ATS Secured today.