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A Bill was been introduced in Congress, supported by a recent letter from the American Bankers Association (Letter), to allow a “hold harmless’’ period from enforcement actions after the new TILA RESPA Integrated Disclosure (TRID) rules take effect.
Creditors, which have yet to satisfactorily test their system’s readiness to ensure compliance with the new rules, fear severe reprisals from the Consumer Financial Protection Bureau (CFPB), and other regulatory agencies, if violations occur in delivering what is required under the new rules.
Many small to mid-size Banks and Mortgage Lenders rely heavily on outsourced technology and systems to deliver what is needed to conduct everyday business. This reliance is increasing as a direct result of increased regulatory requirements governing the mortgage lending process. These changes, coupled with an increased secondary market demand for “zero defect” loans, has placed a tremendous financial burden of all lenders.
While lenders struggle to meet the regulatory requirements and secondary market demands, they also face the everyday pressures of a stagnant economy, a challenging housing market, with fewer qualified homebuyers.
While costs are on the rise, business and profits are shrinking, with threats of enforcement ever increasing. There is a real concern, that as things now stand, there is strong possibility they will fall prey to actions rising from TRID violations because the systems on which they now depend will not be ready in time to allow adequate testing. TRID rules will not only cost them in preparedness, but in enforcement actions and related defense costs as well.
There may not be much that can be done to expedite the readiness of the technology providers. As we all know technology time and real time are very different. Hopefully the systems will be ready when they say and they will work as expected. I wouldn’t bet on it.
That means that lenders need to be prepared to protect themselves as best they can. One sure way is through a staged origination process.
Have in place checkpoints to review a loan at each stage throughout the lending process.
- After application: to ensure accurate and timely disclosures and information
- At underwriting: for continued compliance, change notifications, potential for anti-money laundering, meeting product criteria, as well as QM/ATR review
- Appraisal review: as received to ensure value, condition, accuracy, corrections and adjustments
- Post- approval review: for rate lock notification, and gathering of the information/documentation needed to prepare for the closing (don’t wait)
- Pre-closing audits: about 10 days prior to closing to double check that everything was done correctly and the new Closing Disclosure is accurate. Allow for sufficient time to make any corrections.
By staging and carefully reviewing loans throughout the process, a lender can drastically reduce the potential for the type of errors which could trigger reviews and enforcement actions after closings. This will also provide for early detection and correction of problems. That will reduce delays and defects and associated costs, allowing for quicker and more accurate loan closings, and better customer service. Once closed, these quality loans can be delivered and funded more quickly.
This will minimize enforcement actions and offset increased compliance costs by providing a return on this investment in quality and accuracy. If you need to spend the money, you might as well get something in return.
Be proactive. You need to play different since the game keeps changing.
