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Recent reports from lenders and QC vendors show that overall loan defects are on the decline, including defects related to the TRID rules. This is good news for lenders, the secondary markets, and the housing industry. Fewer defects mean better loans, better loans mean fewer delays with better performance and fewer delays with good loan performance contributes to a much stronger market.
Although things are improving, more work still needs to be done. Reviews of closed loans performed for lenders by LoanLogics reveal some continuing problems in TRID compliance as well as the standard required credit documentation.
The biggest problem in TRID is in the timing of the required disclosures. These include such things as:
- Initial Loan Estimate being issued more than 3 business days after receipt of the application
- Final LE issued same day as the initial Closing Disclosure
- Failure to issue a revised LE when the rate is locked, if not locked at application
- Initial CD not issued in time for receipt at least 3 business days prior to consummation
- Initial CD issued too early (with subsequent changes).
All of the above defects can have serious repercussions for a lender. The result of these violations is that a lender is prohibited from charging fees, or fee increases when disclosures are not issued timely.
Some top credit defects found in LoanLogics reviewed loans include such things as:
- A failure to perform a verbal confirmation of employment within 10 days of closing
- Missing documentation for the source of funds for closing and large deposits
- Incomplete gift documentation
- Incorrect rental income calculations
In addition, some of the top credit defects reported by Fannie Mae are:
- Undisclosed liabilities
- Excessive interested party contributions (IPCs)
- Insufficient assets/reserves
As you can see, we still have defects related to items that have been in play for quite a while. All defects are not related to new rules. The good news is that lenders are paying more attention to quality and compliance than ever before.
This is becoming increasingly more important as we move into a new purchase market in 2017 with more competition for fewer loans. Every deal counts. You can’t afford the additional time and costs from delays, defects, and poor loan performance. Plus, the issues related to lost fee income, indemnifications, repurchases, fines and/or penalties. You need to manufacture loans right, the first time.
If you think paying for loan quality and compliance is expensive, try not paying attention to the details.
