According to a recent Mortgage Industry QC Trend Report from ARMCO, TRID errors in Q3 of 2016 saw an impressive decrease. However, these reductions do not appear to be based on actual error rates, but on how lenders viewed the errors and interpreted the risk.
The report cites this example:
“. . . a defect that was identified earlier in the year that involved a tolerance violation resulted in a borrower refund of $75. This may have been graded earlier in 2016 as a critical defect and treated the same as a tolerance violation resulting in a refund of $2,075 . . . A tolerance violation of $75 may now be graded as a moderate risk due to the overall risk it represents at an organization level.”
This shift has resulted in a decrease in critical defects. The explanation given for this change is that lenders are getting better at assessing risk levels comparative to their organization’s risk tolerance.
The fact is: there has actually been an increase in overall mortgage file defects around compliance, legal and regulatory issues.
See this quote from the same report:
“It’s not that the number of TRID-related defects had fallen—it’s that lenders are refining their understanding of the operational and financial impact that these defects are having on their business and re-categorizing many errors from ‘critical’ to ‘low’ or ‘moderate.’ As a result, the overall critical defect rate continued to fall in Q3 even as the errors themselves increased.”
Lenders and Mortgage Investors: Take Caution
It’s true that the current political climate is such that fear of regulatory penalties aren’t what they were; the market has decided that the measure for critical defects does not need to be as stringent as it once was. But just because a mortgage error has been downgraded does not mean it doesn’t increase risk for investors.
A bad loan is a bad loan. The more defects or errors it contains, despite their severity, the more likely it is that the loan will risk default or other legal repercussions for containing false data. If the market doesn’t want a repeat of the 2008 mortgage crisis (and of course, it doesn’t) then it would be wise to take every error seriously, and demand that loan production maintains a high degree of cleanliness and transparency.
ATS Secured’s platform brings lenders and title agents together to mitigate risk (while also increasing loan volume!), and provides an automated audit trail to ensure regulatory compliance and investor value.