What Lenders Think of TRID Three Years Later--And What It Means for TRID 2.0
By Michael Cremata
October 29, 2018
Michael Cremata is Senior Counsel and Director of Compliance with ClosingCorp, San Diego.
It has been three years since the TILA-RESPA Integrated Disclosure rule (TRID) went into effect and reviews are still mixed as to whether the rule has improved the mortgage process in any of the ways its original proponents intended.
ClosingCorp recently surveyed a small cross-sample of lenders and found that less than half (41 percent) believe TRID has made the mortgage process more transparent for consumers. Only 17 percent believe it has reduced the time to close a loan, and a mere 11 percent believe it has made the mortgage process easier overall for consumers. On the plus side, about half the respondents reported that consumers appear to be shopping more for settlement services since TRID was enacted. Interestingly, only 11 percent specifically cited TRID and/or the Bureau of Consumer Financial Protection's efforts as the reason for the increase, while 20 percent pointed to technology or the Internet as being responsible.
TRID continues to present significant challenges, the lenders said. More than 40 percent reported that they incurred $10,000 or more in tolerance violations in 2017. One-third of the lenders estimated that as many as 5 percent or more of their loans had tolerance violations and 12 percent estimated that three out of 10 of their loans had violations. Who pays? You guessed it, in almost all cases (96 percent) lenders reported being forced to absorb these violations themselves.
The Most Challenging Areas of TRID
Estimating transfer taxes and recording fees appears to be one of the biggest challenges for lenders. When asked to cite the most common sources of tolerance violations suffered in 2017, 35 percent pointed to transfer taxes and recording fees. Not surprisingly, roughly the same percentage (33 percent) said these fees were the most difficult to obtain operationally.
Another common source of tolerance violations, according to 30 percent of respondents, is fees held to zero percent tolerance under TRID (i.e., fees for services provided by an affiliate, or where the consumer is not permitted to shop).
By far the most frequently cited causes of tolerance violations were "human error" and "failure to redisclose following a changed circumstance"--one or both of which were cited by two-thirds of the lenders surveyed.
Surprisingly, more than a quarter of respondents (26 percent) admitted they have resorted to the questionable practice of intentionally inflating fees on Loan Estimates for the specific purpose of avoiding tolerance violations. While TRID says nothing directly about inflating fees, it does state that all fees disclosed on an LE must be provided "in good faith." This means that, if any information necessary for an accurate fee estimate is unknown at the time of disclosure, a lender must estimate fees based on the "best information reasonably available." A fee estimate that a lender knows is too high could constitute a TRID violation just the same as one that is too low.
That said, lenders should be aware that, even though the Bureau may have lowered its public profile when it comes to enforcement, many state regulators and Attorneys General are positioning themselves to become more involved in examinations and enforcement actions to protect their constituents. So it's still important that lenders strive to make their LEs as accurate as possible to mitigate risk.
TRID 2.0: Additional Clarifications, Additional Complications
Last year, the Bureau revised TRID to address some of lenders' biggest pain points through an amendment that has come to be known as "TRID 2.0." Changes in TRID 2.0 included the introduction of a tolerance for the "total of payments" disclosure and clarification of requirements around the disclosure of construction and construction-permanent loans. The new rule also expanded the exemption for certain housing assistance loans and clarified and revised various calculations in the "Calculating Cash to Close" table.
TRID 2.0 just went into mandatory effect October 1. And, if the past is any indicator of the future, there will be some growing pains. While most of the changes implemented by TRID 2.0 were relatively minor, and were generally welcomed by the industry, changes are changes. In this era of hyper-regulation and ever-increasing digitization of the mortgage process, even small changes can present significant operational and technological challenges for lenders.
Ultimately, to minimize tolerance violations under TRID and TRID 2.0, lenders should partner with reliable data resources, implement sophisticated mortgage technology and train their staff to effectively communicate closing costs to borrowers. Adopting these best practices will make it easier if, after our industry finally gets the hang of TRID and TRID 2.0, the Bureau announces TRID 3.0.
(Views expressed in this article do not necessarily reflect policy of the Mortgage Bankers Association, nor do they connote an MBA endorsement of a specific company, product or service. MBA Insights welcomes your submissions. Inquiries can be sent to Mike Sorohan, editor, at firstname.lastname@example.org; or Michael Tucker, editorial manager, at email@example.com.)