Moody’s Investor Service reported that several third-party review firms have revealed that more than 90 percent of the 300 or so residential mortgage loans subject to the TRID that they reviewed had TRID compliance violations, although many of the violations were only “technical” in nature.
The Dec. 10 report suggests that some lenders are having difficulty complying with the rules, which increases the likelihood that loans with compliance violations will be included in future residential mortgage-backed securities (RMBS) pools. The extent to which such violations would increase losses for RMBS is still unclear without further interpretation by the courts or the CFBP.
The Moody’s report speculated that difficulty complying with TRID may result in delayed issuance of new securitizations owing to issuer concerns about including loans with compliance violations.
TRID, which went into effect for loans whose borrowers completed applications after Oct. 2, 2015, requires mortgage lenders to provide new and expanded loan estimates and closing disclosures to consumers within specific time frames. Its purpose is to ensure that consumers clearly understand the cost and risk of the proposed mortgage loan and have a chance to shop for a more suitable product.
In the report, Moody’s wrote, “the fact that all the TPR firms told us that such a large portion of the loans had notable violations is significant. Many of the violations were reportedly technical in nature, such as the need to use the same spelling convention for counterparties or the absence of a required hyphen.”
The report also said the third-party review firms considered the violations material because the extent to which a secondary market purchaser, such as an RMBS trust, would bear damages or costs from delayed foreclosures is still unclear without further court or CFPB interpretation.
Moody’s expects number of technical violations to decline over the next several months as lenders adjust their loan origination systems to comply with the rules. Read the full report here.
