How has the rule impacted the real estate, mortgage and settlement service industries — and consumers ?
Initially, TRID impacted those industries and consumers in positive and negative ways.
Did TRID cause delays?
On the real estate side, real estate agents had expected — and were advised to prepare for — delays in the time it customarily takes to complete a mortgage transaction due to the prescribed deadlines and companies working with the new forms and rules.
Increased closing times of 30 days or more were anticipated, but in February, the National Association of Realtors (NAR) released a study finding that its members were experiencing an average delay of 8.8 days.
Did TRID cause problems acquiring documents, and how common were document errors?
NAR’s survey also found that:
- In the first three months of TRID, 54.5% of respondents had problems getting closing documents for transactions
- Half found errors when they did get access to closing documents
- Realtors were less likely to have access to closing documents in delayed settlements
- Missing concessions and incorrect names or addresses were the most frequently cited errors, but incorrect fees, commissions and taxes were also reported
- E-settlement procedures had fewer errors and faster remediation
How were lenders affected by TRID?
Things were reportedly hairier on the lender side.
How widespread were TRID violations?
In December 2015, Moody’s Investors Services released a credit outlook report in which its analysts estimated that several third-party firms found TRID violations in more than 90 percent of the loans they audited.
Those observations were further validated a few months later, when a team of attorneys identified 10 of the most common mortgage application errors and problems.
What’s the problem with document errors and problems?
The attorneys also discussed the fact that investors were refusing to buy loans due to compliance problems and document errors — raising concerns about how this could ultimately affect liquidity in the mortgage market if these trends continued.
How have the struggles to comply affected the industry?
Struggling to comply with the rule, some lenders have begun winding down their mortgage operations or are even exiting the retail mortgage business altogether.
Transaction volume has played a part in those decisions; in February 2016, RealtyTrac said in its Residential Property Loan Origination Report that purchase loan originations during the fourth quarter of 2015 fell 24 percent quarter-over-quarter, the biggest quarterly drop in purchase originations in more than five years.
Is TRID better for consumers, though?
Whether the CFPB has succeeded in its mission of making the homebuying process simpler and easier to understand for consumers is up for debate.
Are consumers saving money?
In February 2016, the American Bankers Association (ABA) released the results of a post-TRID mortgage lender survey showing that some banks are so burdened by the complex regulation, they are charging higher mortgage loan fees to consumers — anywhere between $300 and $1,000 in additional costs.
In March 2016, real estate closing cost data and technology provider ClosingCorp released the results of a survey of 1,000 repeat homebuyers who compared their pre- and post-TRID homebuying experiences.
More than half of respondents encountered “unexpected costs, fees and surprises” in their post-TRID mortgage transactions.
Do consumers think the TRID forms are easier to understand?
Respondents to the ClosingCorp survey were about evenly split on whether the new LE and CD forms are easier to understand than the old forms, with 63 percent of respondents agreeing with that statement, and whether they felt that their costs and fees were explained better in their most recent experience, with 65 percent of respondents expressing agreement.
Did consumers shop for different service providers?
Of the 78 percent of buyers who said they were informed that they could shop for different service providers, 74 percent of that group said they shopped for providers, but only 55 percent of them saved money — somewhere between $1,000 and $5,000 — as a result.
And 57 percent of the respondents said the overall process of getting and closing a loan took more time in their most recent experience.
Is there any positive feedback on TRID?
In late March 2016, STRATMOR, a strategic advisory and consulting firm that serves mortgage lenders, released data from its MortgageSAT Borrower Satisfaction Program, finding that customer satisfaction was at 91 percent — the highest rate since STRATMOR started its program in 2013.
So six months into TRID, the jury is still very much out.
How does the CFPB assess companies’ compliance with TRID?
This has been a major point of contention between the CFPB and the industries affected by the TRID rule since the rule issued.
Does this have something to do with that “grace period” thing?
Very good! Due to the rule’s complexity and the significant changes it brought to the mortgage transaction, the affected industries requested that the CFPB adopt some sort of preliminary grace period during which those who made a “good-faith” attempt to comply with the rule would be held harmless for any errors or compliance problems.
This was something the bureau’s predecessor, HUD, agreed to do for the implementation of the reverse mortgage financial assessment rule in 2015 as well as the RESPA reform rule in 2010.
But there was no grace period, was there?
Correct; the CFPB staunchly refused to implement such a grace period, despite several industry trade groups attempting Congressional intervention.
The most the bureau would agree to was to be “sensitive” for an undefined period of time and take actions that are “diagnostic, not punitive” against companies that can show they are making a good-faith attempt to comply with the rule.
What resources does the CFPB make available to help with compliance?
The CFPB has published a Supervision and Examination manual outlining its assessment process, which is available here.
The CFPB also periodically issues Supervisory Highlights to apprise the public and the financial services industry about its examination program, including the concerns that it finds during the course of its completed work, as well as the remedies that it obtains for consumers who have suffered financial or other harm.
What triggers a CFPB investigation?
Past investigations have been initiated by consumer complaints, company failures, consumer lawsuits and even disgruntled former employees.
What happens when an investigation is triggered?
The CFPB typically provides written, advance notice to parties selected for examination and gives them 60 days to gather documents and submit them to the bureau’s examiners — however, notice is not required, and the CFPB may begin an examination with no prior notice given.
In general, if the CFPB initiates an investigation into a company’s practices, it will conduct a thorough examination to determine that:
- The company has established procedures to ensure compliance
- The company does not engage in any activities prohibited by the rule (for example, kickbacks, payment or receipt of referral fees or unearned fees or excessive escrow fees)
- The proper disclosures were completed and provided to borrowers within the prescribed time periods
- The company took timely, corrective action when policies or internal controls were deficient or when violations were identified
- Record retention requirements were followed
- And a few other items
What documents should the companies investigated expect to produce?
Companies can expect to be asked to produce a wealth of documentation, records and other items, including:
- Organizational charts
- Process flowcharts
- Policies and procedures
- Loan documentation and disclosures
- Checklists/worksheets and review documents
- Marketing methods and materials
- Computer programs
- Emails
Who is involved in the investigation?
In most cases, the CFPB will investigate the lender and all of the service providers with whom it worked.
Does the CFPB share findings with those under investigation before the review is final?
Before completing a review, the CFPB will discuss its preliminary findings with the party under investigation.
The bureau has encouraged full communication and dialogue and says it “anticipates that most disputes can be resolved before an examination is final.”
Is there an appeal process?
If the CFPB issues an adverse finding against the party, that party may appeal the bureau’s conclusions within 30 days.
The CFPB will then appoint a committee composed of individuals who were not involved in the supervisory matter being appealed. The committee will review:
- The supervisory letter or examination report for consistency with the policies, practices and mission of the CFPB,
- The overall reasonableness of the examiners’ determinations
- Support offered for the supervisory findings.
Only the facts and circumstances upon which a supervisory finding was made will be considered by the committee. It is the appellant’s burden to show that the contested supervisory findings should be modified or set aside.
Upon conclusion of the review, the committee’s findings will be summarized in a written decision and submitted to the CFPB’s associate director, who will review the decision and make any modifications as he or she deems appropriate. This decision is final and cannot be appealed any further.
What are the penalties for violating the TRID rule?
Penalties for non-compliance are severe, and legal/compliance experts have warned that failing to follow the required regulations and processes could mean financial ruin for most companies.
What could the CFPB do to violators?
If the CFPB finds someone to be in violation of the rule, it has several courses of action at its disposal. The Dodd-Frank Act gives it the power to seek civil penalties, actions for damages, restitution and injunctive relief — and even a combination of those tools.
Enforcement of TRID also includes provisions for the private right of action by consumers directly against violators, as granted under the Truth in Lending Act (TILA).
What kind of penalties could violators face?
The Dodd-Frank act sets forth three separate tiers of penalties for violators of any federal consumer financial law:
- Tier 1: For anyone who violated the law through any act or omission, a civil penalty up to $5,000 per day, per violation, or period of failure to pay.
- Tier 2: For anyone who recklessly engages in a violation, a civil penalty up to $25,000 per day, per violation.
- Tier 3: For anyone who knowingly violates the law, a civil penalty up to $1 million per day, per violation.
In determining what penalty to assess to a violator, the CFPB may take several mitigating factors into account, including:
- The amount of financial resources and good faith of the person charged;
- The seriousness of the violation or failure to pay;
- The severity of the risks or loss to the consumer; and
- Any history of previous violations.
Thank you Inman News’ Amy Swinderman for this valuable information.
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