Are You Ready for the TILA-RESPA Integrated Disclosures (TRID)? By Vincent Spoto

Transcription

1 Are You Ready for the TILA-RESPA Integrated Disclosures (TRID)? By Vincent Spoto 1

2 Are You Ready for the TILA- RESPA Integrated Disclosures (TRID)? By Vincent Spoto By now, most lenders should be well on their way to revamping their lending disclosure process for the TILA-RESPA Integrated Disclosure (TRID). Unfortunately, there is still a fair amount of preparation work that needs to be done across the industry in order to ensure compliance with TRID, even with the CFPB s recently finalized delay of the implementation date to October 3, Readiness among lenders continues to evolve quickly, and has picked-up-steam as the implementation deadline approaches. For over 40 years, the mortgage industry has been governed by Federal law requiring consumers be provided with three separate disclosure forms when applying for and when closing on a mortgage loan. Specifically, lenders are currently required to provide consumers with two different disclosure forms at the time of loan application - A Good Faith Estimate (GFE), and a preliminary Truth-In-Lending (TIL) disclosure. At or shortly before closing, two additional disclosure forms must also be provided to borrowers - the HUD-1 Settlement Document, and a final Truth-In-Lending Statement. Two different Federal agencies had originally developed these forms separately, under two Federal statutes: The Truth in Lending Act (TILA) - Regulation Z of 1968 and the Real Estate Settlement Procedures Act of 1974 (RESPA). The Dodd-Frank Wall Street Reform Act and the Consumer Protection Act of 2010 directed the Consumer Financial Protection Bureau (CFPB) to integrate the existing three disclosure documents in order to help consumers shop for loans and better understand their future financial obligations. This mandate was largely in response to feedback received from consumers who said that the existing forms were confusing and difficult to follow. Additionally, comments were received from lenders and settlement agents who indicated that the forms were burdensome to administer and difficult to explain to consumers. Since 2011, the CFPB has been working to integrate these three disclosure documents into two documents, and completed its work when the CFPB s finalized rule was finalized in November The CFPB has developed the Loan Estimate disclosure document that must be delivered to the consumer no later than the third business day after submission of a new loan application. The CFPB has also developed the final Closing Disclosure document which must be received by the consumer at least three business days before consummation of the loan. Initially, the CFPB announced that TRID would go into effect on August 1, 2015, with somewhat of an undefined grace period. On June 17, 2015 the CFPB announced it would propose delaying implementation of TRID (also referred to as the Know Before You Owe rule) until October 3, The proposal was recently finalized making the new effective date October 3rd. During the first quarter of 2015 when TRID was targeted for implementation on August 1, 2015, Stewart conducted a formal survey of over 300 lenders across all 50 states to gauge their level of preparedness relating to implementation. The survey was completed by large national lenders, regional lenders, independent mortgage bankers as well as local lenders and credit unions. A total of 36 questions were included in the survey, with one of the initial questions asking lenders to rate themselves, on a top level, as to their overall state of readiness regarding TRID implementation. 87% of the lenders responding categorized themselves as being moderately to fully prepared. A rating scale of 0-5 was utilized (with 0 meaning Not at all Prepared and 5 signifying being Fully Prepared ). For the lenders responding to the survey, 13% rated themselves as being a 5 on the readiness scale, with 74% rating themselves as being either a 3 or a 4. As the survey questionnaire How prepared is your company to implement TRID? 13% 74% 13% 0 - Not Al All Prepared Fully Prepared THE PRECEDING DISCUSSION IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND IS NOT LEGAL ADVICE TO ANY PARTY. ANY OPINIONS OR POSITIONS EXPRESSED ARE THOSE OF THE AUTHORS AND NOT OF STEWART OR ANY AFFILIATED ENTITY. YOU ARE STRONGLY ENCOURAGED TO SEEK LEGAL COUNSEL BEFORE TAKING ANY ACTIONS IN RELIANCE UPON THESE MATERIALS. continued, the questions became more specific and focused on some very particular aspects concerning TRID implementation (i.e. delivery methods, software use, training readiness, etc.). Further review and analysis of the responses revealed that many 2 Integrated Disclosures (TRID)?

3 lenders indicated they were Undecided when asked about some of the more definitive components of TRID implementation. This Undecided classification cut across several categories, including:» Delivery method (i.e. electronic vs. hard copy);» Use of a third-party to deliver the required disclosures;» Handling of and responsibility for making re-disclosures;» Use of software or data/file transfer and collaboration for the preparation of the required disclosure documents;» Utilization of an external settlement agent;» Training readiness; and» Staffing for late evening [consumer] signings. Recently, the Mortgage Bankers Association (MBA) also took a survey on the preparedness of various organizations with TRID implementation. Their findings aligned closely with our results with 74% of individuals taking the survey were pretty far along and think (they) will be ok while 23% of respondents saying they are not sure at this point - so much to do and so little time and the last 3% of respondents answering other. It was refreshing to see that 100% of all those who did respond to the survey indicated that they had already established a TRID Task Force or Working Group to prepare for implementation of the new disclosure regulations. As expected, larger lenders responding to the survey, while still in discovery on many facets of the rule and implementation, were much further down the planning path at the time the survey was issued. Those lenders, due to the size of the operations and existing vendor relationships, came together to work through a large transaction management vendor to form a collaborative advisory group to ensure all compliance concerns were covered and included most of the large title underwriters. Subsequent to distribution by Stewart Title of the initial survey in Q1 2015, follow-up phone calls were made to many of the lenders surveyed. These phone conversations revealed a transition and evolution regarding each lender s state of readiness, with many lenders who were contacted presenting more definitive readiness plans in response to questions previously responded to as Undecided. As the [original] August 1, 2015 target TRID implementation date was nearing, lender readiness was clearly building by the second quarter of 2015, with many beginning to realize that TRID was the real deal. In addition, lenders were coming to grips with the fact that they would own the disclosure documents and that the documents would not be prepared by the settlement agent. Subsequent discussions with many of those surveyed expressed a belief that TRID could delay closings, primarily due to unresolved issues caused by the reduced timeframe for lenders. This, coupled with the fact that TRID represented a fairly dramatic change for an industry which has managed consumer disclosures in relatively the same manner for over four decades, were viewed as being natural and logical factors that could contribute to delays in the closing process. The implementation postponement to October 3, 2015 should provide lenders with an additional cushion regarding their implementation readiness plans, particularly as related to: (i) systems integration, (ii) revisions/other re-disclosures, (iii) disclosure/re-disclosure responsibilities, (iv) source for fee disclosures, (v) rate lock expirations/ extensions, and (vi) approved settlement agents. Even with the growing level of readiness among lenders responding to Stewart Title s survey, these topics generated a fair number of comments and revealed there were still open issues remaining regarding TRID. Specifically: (i) Systems Integration: Not surprisingly, the survey revealed that a wide range of loan origination systems were being used across lenders origination in all channels. Lenders surveyed were questioned about their plans to utilize software for data/file transfer and collaboration for the preparation of the Loan Estimate and/or the Closing Disclosure document. Most respondents noted that while their ultimate goal was to have full data integration, early indications were that they would not have this fully in-place for the initial roll-out of TRID. There was an acknowledgment that full data integration was Are you using software for data/file transfer and collaboration for the preparation of the Loan Estimate and/or Closing Disclosure? 30% 9% 39% 21% Yes No Undecided Planned but not implemented We see the new TRID regulations as the tipping point for the mortgage and title industry in terms of integration and collaboration. Never in the industry s history have we had a greater need for improved systems integration and collaboration between the lender and settlement service providers to ensure our ultimate goal of an enhanced customer experience. Jason Nadeau, Group President, Mortgage and Title Services, Stewart the optimal end-state goal, but that this was still a work-in-progress. Many respondents also indicated that systems programming and testing relating to production of the new disclosure forms were in varying phases, ranging from being complete to being inprocess. The recent MBA survey asked a specific question about systems integration. When respondents were asked, Looking at your readiness, have all your necessary vendors (or internal IT staff) provided you with needed code or software?, 41% answered, Yes, we have the critical items needed, another 53% responded with Some, but still waiting on key code from some vendors or internal IT, 3% said, No, we are way behind schedule here, and 2% answered other. The CFPB s decision to propose a delay in TRID implementation from August 1 to October 3, 2015 will likely give lenders more time to achieve full data integration, software development and testing. 3 Integrated Disclosures (TRID)?

4 (ii) Revisions/Other Re-Disclosures: Lenders are generally bound by the preliminary Loan Estimate document, and may not issue revisions because they later discover technical errors or other miscalculations and underestimations of charges. Only in certain changed circumstances are lenders permitted to re-disclose, including for example if the interest rate was not locked when the preliminary Loan Estimate document was provided, and locking the rate caused the points and other credits initially disclosed to change. While respondents to the survey generally understood these significant compliance requirements, there was less than a unanimous response regarding certainty of the final process that would be utilized when issuing disclosure revisions and re-disclosures. Specifically, respondents were varied regarding their understanding of responsibilities associated with redisclosure; in follow-up discussions with the lenders subsequent to issuance of the survey, the industry has largely unified on this being the lenders responsibility. (iii) Initial Disclosures/Re-Disclosure Responsibility: Many respondents were unclear in their understanding of initial disclosure/re-disclosure responsibilities. Initial Disclosures: Virtually all respondents indicated they understood their responsibility to handle the Loan Estimate and Closing Disclosure. This was an important finding and one of the key reasons for the survey. While Stewart and other settlement agents had considered there could be some small contingent of lenders that might expect settlement agents to have a larger role, the survey almost exclusively show the recognition of the lenders responsibility for these disclosures. Respondents were somewhat mixed in their understanding of who specifically is responsible for administering the Closing Disclosure document and obtaining the consumer s acknowledgement of receipt. The CFPB clearly indicates that the lender is responsible for providing consumers with both the preliminary Loan Estimate document and the final Closing Disclosure document. In those instances in which a mortgage broker receives a loan application, the broker may provide the consumer with the preliminary Loan Estimate disclosure document on the lender s behalf. Re-Disclosure: In cases where estimated costs disclosed on the Loan Estimate increase beyond the permitted levels and the consumer pays more at closing, the creditor must refund the excess payment to the consumer no later than 60 days after consummation. The creditor must also provide the consumer with a corrected Closing Disclosure reflecting the refund. Specifically, any amount the consumer is charged at closing above the amount disclosed on the Loan Estimate must be refunded to the consumer for items subject to zero tolerance. The consumer must be refunded any amounts that exceed the total sum of all charges disclosed on the Loan Estimate by more than 10% for items subject to the 10% cumulative tolerance. Nearly 50% of respondents indicated they remained undecided as to how they would handle revisions at signing and changes occurring post-closing. Many respondents indicated they would only re-disclose at the time the final Closing Disclosure document is issued, with some limiting their processes for redisclosures only to material changes in the APR, pre-payments, etc. Regarding the delivery methods to the consumer of the required re-disclosure document, some indicated that redisclosure - depending when in the process the change occurs - may simply be an update to the Closing Disclosure provided at closing, or issuance of a revised settlement statement. (iv) Source for Fee Disclosures: In general, lenders uniformly understand that all fees must be gathered and included on disclosures made to consumers. Whether it be use of a webbased rate calculator, information obtained from underlying Loan Origination Systems (LOS) or s and phone calls made to the Settlement Agent s office, it is clear amongst lenders that the necessary fee information must be gathered and consolidated for purposes of providing consumers with complete disclosures. What is not uniform is a consensus among lenders regarding a defined process they will use to gather fees; more important than process uniformity among lenders is the fact that some individual lenders still have not yet defined their own internal processes and protocols for sourcing necessary information for fee disclosures. Most lenders expressed confidence, however that they will have established procedures and protocols in place for sourcing fee information by the time TRID goes into effect. How do you plan to obtain initial fees from your settlement provider for use in producing the Loan Estimate? Rate calculator (web-based) Pull Through Loan Origination System (LOS) to Settlement Office Phone Call to Settlement Office Fax Other (Please specify) 30% 15% 30% 39% 39% (v) Rate Lock Expirations and Extensions: One area that generated a considerable amount of feedback from respondents was how rate locks would be handled. Some lenders discussed the timing of rate locks, extensions and expirations. As the preliminary Loan Estimate document discloses the rate, the only way that the rate would expire would be if the closing was postponed. In this case the lender would likely cover the extension costs and handle redisclosure to the consumer. One respondent indicated that they established a policy whereby all rate locks must meet or exceed the expected loan consummation date. Another respondent indicated that their existing process for handling expired rate locks would remain unchanged, while another indicated its standard 60-day rate lock would be extended for a fee, and were not planning to 45% 4 Integrated Disclosures (TRID)?

5 re-disclose Loan Estimates for expiration of cost estimates. Several lenders indicated they would not proceed with a closing for any loan having an expired rate. As a general rule, new interest rates resulting from expired rate locks must be included on the final Loan Disclosure document. (vi) Approved Settlement Agents: The survey did ask specifically about lenders taking a more active role in managing their settlement agent network. Since the decision to select the settlement provider typically is made by the consumer or real estate agent, Stewart found that an overwhelming majority of lenders were taking a much more active role in setting up a network of preferred settlement agents. CFPB and other regulators have been putting increasing pressure on all lenders to ensure that their third-party service providers meet very high standards. This, in turn, has caused lenders to put title and settlement providers under a microscope as they routinely handle vast sums of lender funds and considerable amounts of consumers non-public personal information. We have seen and continue to expect lenders to be spending more time on their approved settlement provider lists as the flight to quality continues to accelerate. To some degree, this is driven by a desire to work with fewer select groups to manage the overall TRID readiness. This is also largely driven by the vendor oversight requirements that lenders have been under scrutiny to get better controls over. * * * * * As the implementation date for TRID nears, the certainty of the new regulation is now becoming clear and increasingly better understood by lenders, settlement agents and others across the industry. The reality and acceptance that TRID is here to stay has prompted many to ramp-up their implementation plans and modify their systems and processes accordingly. While the extension was a welcome buffer period, most lenders and settlement agents had planned for the initial implementation date and the delay is certainly causing some rescheduling and analysis of project readiness. Stewart wishes to thank the respondents to the survey as it provided meaningful feedback during a time that there were still many decisions being made. After more than 22 months of planning and implementation, your partners at Stewart stand ready to support our lenders and customers both as a resource for information and to assist with any questions you might have related to our process. If you or your staff would like training on the suite of tools available to assist with TRID implementation and rollout, please let us know how we can help. Please contact your local Stewart representative or reach out to our TRID Readiness team at lenderservices@stewart.com. Chrisman, Rob. News from the MBA, Including TRID Survey, OIG, CFPB, NAR, CUNA, PACE, and Several Other Acronyms. Mortgage News Daily. Brown House Media, Inc., 15 July Web. 24 July < 5 Integrated Disclosures (TRID)?