STRATMOR: TRID Implementation Ups Lenders Origination Costs by $210 Per Loan

Sorohan, Mike msorohan@mba.org

March 29, 2016

STRATMOR Group, Greenwood City, Colo., said a survey of lenders found that the Consumer Financial Protection Bureau's TILA/RESPA Integrated Disclosure rule, while significantly boosting borrower satisfaction, comes with a price. Literally.

The survey said TRID--also known as the "Know Before You Owe" rule--increased mortgage lender origination costs by nearly $210 per loan.

"Implementing TRID has obviously not been easy for lenders" said Matthew Lind, STRATMOR senior partner and founder. "It's been costly as well. On average, since October 2015, TRID has increased lender back office fulfillment and post-closing costs by an average of $209 per loan, and lenders are estimating that only about 17 percent of those costs can be recovered through additional charges."

The report comes on the heels of the Mortgage Bankers Association's Quarterly Mortgage Bankers Performance Report, which last week reported a $493 net gain in the fourth quarter, down from $1,238 per loan in the third quarter. MBA Vice President of Industry Analysis Marina Walsh said the fourth quarter marked the second-highest level of production expenses per loan since the report's inception in 2008.

The MBA report said lenders' "net cost to originate"--production operating expenses and commissions, minus all fee income, but excludes secondary marketing gains, capitalized servicing, servicing released premiums and warehouse interest spread--rose to $6,163 per loan in the fourth quarter, up from $5,549 in the third quarter. Total loan production expenses--commissions, compensation, occupancy, equipment and other production expenses and corporate allocations--increased to $7,747 per loan in the fourth quarter, from $7,080 in the third quarter. Personnel expenses averaged $5,131 per loan in the fourth quarter, up from $4,674 per loan in the third quarter.

The STRATMOR Spotlight Survey reported TRID implementation appears to be largely complete, with the vast majority (87 percent) of survey respondents reporting implementation either fully or mostly accomplished; only 1 percent said their efforts were "way behind." Independent lenders were generally ahead of banks, with TRID implementation fully accomplished at 72 percent of small and 80 percent of mid-sized independents, compared to just 33 and 44 percent respectively for small and mid-sized banks.

However, Lind said TRID seems to be associated with a significant pickup in borrower satisfaction, despite somewhat slower application-to-closing times. "At the end of the day, improving the borrower's experience is a main objective of TRID, and in an increasingly competitive origination market, it is also a primary goal of lenders as well," he said.

The STRATMOR survey reported a steady and substantial increase--from 85 to 91 percent--in the proportion of borrowers being contacted by their lender prior to closing. Increasing such contact was a key goal of TRID. As a result, overall borrower satisfaction with the origination process now stands at 91 percent, a record high.

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