On Oct. 3 of last year, some of the biggest changes to ever come down the pike in residential mortgage lending went into effect. Referred to by the acronym TRID — which stands for the TILA-RESPA Integrated Disclosure rule — these changes have impacted the mortgage origination process for almost all residential mortgage loans.
TRID is a new 1,888-page rule from the Consumer Financial Protection Bureau designed to make the mortgage process simpler, more transparent and easier for borrowers to understand. It replaced the initial Truth-in-Lending disclosure and Good Faith Estimate with a new disclosure called the Loan Estimate, and the final Truth-in-Lending Disclosure and HUD-1 settlement statement with the Closing Disclosure.
These new disclosure forms are shorter and less complicated than the old forms they replace, and they include more disclosure information for borrowers. This is designed to help homebuyers be better prepared for the often confusing and intimidating mortgage closing process.
In addition, the disclosure forms must be delivered to homebuyers according to strict timelines: the Loan Estimate no later than three business days after borrowers submit a loan application, and the Closing Disclosure at least three days before the closing. This should give borrowers adequate time to review the disclosures, ask questions and deposit funds needed for closing.
Impact on lenders
The new rules imposed by TRID are having a major impact on all three key players in the mortgage process: homebuyers, real estate agents and mortgage lenders. In particular, lenders now play a more significant role in the disclosure process. For example, lenders now will usually be responsible for preparing the Closing Disclosure. In the past, the closing attorney typically originated all documents associated with closing costs and fees.
Though it has only been in effect for a few months, TRID’s impact already is being felt far and wide across the mortgage industry, according to Steven Schipper, CFA, managing director of LendTrade, a loan sale advisory firm, based in Des Moines, Iowa.
“TRID has impacted the types of loans that banks are willing to originate,” Schipper said. “For example, some banks have said they discontinued originating certain loans in situations where their loan origination system had challenges with the APR [Annual Percentage Rate] calculation.”
In addition, TRID has increased costs for banks in terms of legal fees, compliance costs, training, etc.
“Lenders are very worried about the legal liabilities, which are much bigger than before,” Schipper said. “Also, TRID has been a huge technology challenge for banks, which are struggling to get their internal processes and external vendors to integrate effectively.”
No TRID precedent
Rob Alba, senior vice president and counsel in the mortgage market division of the American Bankers Association, said there is no precedent for TRID in the mortgage industry. “TRID is already proving to be an extremely difficult rule for banks to comply with and implement,” Alba said. “It is bringing massive changes to the industry.”
One of the biggest compliance challenges banks are facing so far, Alba said, is dealing with the fact that required disclosures can differ based on a variety of factors, such as which fee is being disclosed, who is paying the fee, to whom the fee is being paid and at what point in the origination process it is being paid. “These all will impact which specific disclosures are required,” he said.
Another early challenge has to do with how fees associated with piggyback loans or simultaneous second liens should be disclosed under TRID. Writing on the National Association of Federal Credit Union’s blog page, Victoria Daka, regulatory compliance counsel for NAFCU, stated that “while the CFPB has not come out and clarified how to handle fees associated with a simultaneous second mortgage that is open-end, it may be helpful to keep in mind that these are separate transactions.”
According to Daka, the CFPB noted in a webinar that the alternative Loan Estimate could be used for simultaneous closed-end second loans. “Unfortunately, we are not aware of any clear guidance from the bureau on open-end piggyback loans,” she wrote.
More changes coming
Alba said “the ink still isn’t dry” on the TRID rules — more changes are forthcoming. “The CFPB has said informally that they will be doing cleanup rule-making in 2016 because there are still lots of issues that need clarification,” he said. “TRID is going to continue to evolve over the next 18 months, so banks need to be nimble and prepared to adapt as new guidance emerges from the CFPB.”
Alba urges banks to stay focused on what they know and understand now rather than worrying about what might happen later with TRID. “It’s very tenuous right now due to all the uncertainty,” he said.
Freelance writer Don Sadler contributed to the writing and research of this article.
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