The period of voluntary compliance is over with respect to the Consumer Financial Protection Bureau’s (CFPB) TILA-RESPA Integrated Disclosure (TRID) amendments. However, TRID compliance remains tantamount to a moving target some in the industry just can’t seem to hit.
As the updated TRID provisions have taken effect, many continue to struggle with the disclosure requirements implemented three years ago as regulators have gotten more technical in their examinations.
“My understanding is that some of these violations have to do with how tolerance cures are disclosed, how credits are applied to the finance charge and APR, not listing certain contact information and other technical issues like this,” Garris Horn Managing Member Richard Horn said, speaking to Dodd Frank Update. “A lot of lenders may not realize they are violating TRID because the issues might be very technical. Also, issues raised by regulators in exams are confidential, so without regulators reporting these issues, like in the CFPB’s Supervisory Highlights reports, it’s difficult for the industry to know what violations regulators are actually citing.”
Buckley Sandler Partner Ben Olson said examiners’ apparent heightened focus on more technical aspects of TRID is indicative of the bureau’s new approach as described by acting director Mick Mulvaney during a March conference hosted by the National Association of Realtors.
“The period during which lenders who engaged in good-faith efforts to implement TRID were not cited for violations appears to be over,” Olson told Dodd Frank Update. “While the bureau seems to be implementing its publicly stated goals to go ‘back to basics,’ we have seen it focus on very technical issues during mortgage origination examinations that do not always align with prevailing interpretations.”
Apparent technical issues
Through conversations with counterparts in the business of TRID compliance, Horn has become aware of various technical issues that have come to light in recent examinations. Some are not directly violations of TRID but are made more apparent because of TRID, such as the application of credits to finance charges and cure disclosures.
“One issue is whether you can factor general credits from the lender or third parties into the finance charge, and thus the APR,” Horn explained. “That’s something that I’ve heard examiners have focused on.
“I’ve also heard that examiners are focusing on how cures are being disclosed at closing,” he continued. “The issue with that is, if the lender is providing money for an increase at closing, whether there is actually a tolerance violation that has to be cured and thus disclosed as a cure at closing.”
Horn has heard different interpretations in the industry on the need to provide such a disclosure. In some instances where lenders cover increases at closing, some have determined that there is no tolerance violation, Horn said. On the other hand, some have taken a firm stance contradicting that view.
“With these different, strongly held interpretations out there, examiners from different teams or agencies may come to different conclusions on that point, which could be an issue, and this applies to many issues under TRID, actually,” Horn said.
Regarding other types of violations he has seen, Horn said, “I’ve also seen examiners call out some of the service providers on the written list of providers, saying they weren’t available to provide the service on a transaction due to their geographic location or because their contact information was not listed correctly.”
Big picture issues
Many of the TRID issues Horn has caught while reviewing clients’ procedures have been what he referred to as “bigger picture” TRID compliance missteps, in addition to technical problems. Such issues involve the timing of Loan Estimates, other definition of application issues, inaccurate estimates and good faith problems, which he noted could result in large amounts of cures and restitution if not addressed prior to an examination.
One mistake Horn has seen is failing to track the six pieces of borrower information they are required to gather for a Loan Estimate – name, income, Social Security number to obtain a credit report, property address, property value estimate and mortgage loan amount sought. He also has seen issues in how fees are disclosed, including cases where information was disclosed in the wrong section of a form, resulting in tolerance problems.
Horn noted that if the lender provides a reasonable interpretation for the placement of a fee, it might help prevent the citation of a violation.
Preventing TRID issues
Many of the TRID compliance issues Horn has seen or become aware of likely stem from a lack of proper implementation of the rule, including updating policies and procedures, or staff training and controls.
“There is a lot of misunderstanding out there still at the staff level about how TRID works,” he said. “If there aren’t proper policies, procedures and controls that were instituted during the implementation of the rule, those misunderstandings can result in problems for lenders and others involved in the process, like title companies and other settlement agents.”
Horn noted that contractual liability is also a concern. “As investors are reviewing their loan portfolios at a more technical level, the amounts of problems that lenders can experience may increase, in addition to the exam issues,” Horn added. “I think it is good to remember that investors may also be able to cause a lot of pain for lenders.”
TRID 2.0: What you need to know
Despite the fact that TRID 2.0’s Oct. 1 mandatory compliance date has come and gone, Horn said many people have not cracked the books on the rule yet.
“I’m getting people reaching out wanting to know what’s in the TRID 2.0 rule,” he said. “If you don’t have TRID 1.0 down correctly and you don’t even know what’s in TRID 2.0, you could really find yourself with some problems.”
Horn noted that TRID 2.0 includes guidance that could change interpretations on major issues such as loan-level itemization requirements for loan estimates, the disclosure of costs and loan terms for construction permit loans and the requirement to provide revised Loan Estimates and what they must include, among others.
“All of that may be changed under TRID 2.0, but it also was important under TRID 1.0. If you didn’t do what you had to do before, and you aren’t doing work to implement the changes, you could not only have problems with your loans over a significant period of time, you may have a very difficult time pleading good faith in exams, and potentially face an enforcement action,” he said. “TRID 2.0 doesn’t go back and fix or give you a good faith period for your TRID 1.0 violations. Exams are backward-looking and the agencies may have a longer period to look at these issues at an administrative level, which could mean trouble.”
Lenders could be forced by examiners or investors to provide restitution or repurchase loans with even minor TRID violations, Horn added, further stressing the importance of being cognizant of violations of the rule in its original form or its updated version.