Ben Giumarra

Compliance with TRID has been difficult, but lenders are not powerless to help themselves even after mistakes have been made. The rule allows lenders to cure certain errors by reissuing a revised disclosure within 60 days of closing. But it’s not necessarily as simple as that – with errors likely on every single loan, and plenty of debate over various rule interpretations, finding and fixing errors can be time-consuming and expensive.

From what we’ve seen, lenders fall into different camps on this subject: Some lenders have developed a robust post-close process and wound up revising almost every single disclosure post-closing. Others rely more heavily on investor reviews, while others try to balance perfection and profitability and revise only for certain types of errors.

Here are some of the major policy decisions facing lenders:

Do we review every CD post-closing?

The answer is probably yes. With the unknown, but potentially high, risks involved, looking at every loan seems prudent. (At least until you start finding fewer errors.) Note that the CFPB expressly intended the 60-day cure provision as an “incentive [to] conduct quality control reviews as soon as reasonably practicable after consummation.” Lenders should be working to demonstrate “good faith efforts,” per an Oct. 1 letter from the CFPB. Failure to do a serious post-close review will not reflect well on those efforts.

Reviewing every loan for TRID compliance is one thing; actually finding all the errors is another. Who is available in your institution that you trust as a “TRID expert?” Even the best, most experienced compliance officers might not yet be truly comfortable auditing for TRID compliance. If you enlist third-party help, I offer this advice: Don’t outsource your way to mediocrity. Understanding TRID will be an essential skill for a mortgage banker going forward. Make sure your own team is actively involved with any third-party activity.

Do we revise the CD for every mistake?

Another tough question. Some lenders say yes. In addition to fixing errors, this forces employees to learn the rule in a short period of time, making ongoing errors much less likely. But it’s also not easy to accomplish. Other lenders plan not to reissue disclosures that are “almost perfect.” Of course, for lenders reviewing loans post-closing, it’s hard to do nothing if you know an error was made. It’s just not in our nature. Most lenders have not found too many “almost perfect” disclosures, making this a nonissue; if 5 percent of volume is “almost perfect,” might as well just make it simple and revise for every mistake, large or small.

One potential problem we’ve seen is lenders who decide not reissue disclosures for small mistakes. Indeed, the 60-day cure provision is only allowed for 1) “non-numeric clerical errors” and 2) good faith violations. So a lender not reissuing for what it considers “small” errors might be using the cure provision only half as much as it could be.

Do we revise the CD as soon as possible (or anytime within 60 days)?

I would say no. Originally, the 60-day cure period required lenders to act as “soon as reasonably practicable.” They jettisoned this language, implying that we are allowed to use the full 60 days. Practically speaking, a lender that rushes to fix a disclosure five days after closing will likely find another error later on, essentially doubling its workload. Not good for morale.

How much should we rely on investor reviews?

While I’m a big proponent of the “perfection is not profitable” mentality, I think 100 percent reliance on third-party investors (who, by the way, are protected by reps and warrants) is not the best approach with this rule. The lender of record is responsible for any violations, not the investor. So while investor approval is good news, and leveraging the investor’s review is good too, I think a little bit more is required. Even the top investors aren’t close to perfect – it seems like they find something new every week.

Do we revise the CD if we miss the 60-day window?

I say yes. The 60-day window is only the cure provision provided by the TRID regulation. Even if you’re outside this window, there are other reasons to get this fixed, such as TILA’s statutory protection against civil liability for errors cured within 60 days of discovery (as opposed to closing), or just generally your obligation to act fairly (think UDAAP).

How much can we rely on the 60-day cure provision?

Not too much. Lenders should be making a good faith effort to get the closing disclosure accurate before closing, and not just within 60 days after closing. Don’t think of this as a loophole; regulators have plenty of flexibility to punish any lender abusing the 60-day cure provision, e.g. by intentionally closing with major errors and later fixing them after closing.

This is a gamble either way. Lenders playing it “fast and loose” are trading short-term profits for potential long-term risks. Lenders reviewing 100 percent of TRID loans and fixing 100 percent of errors are betting on trading major regulatory setbacks for major brownie points at the next exam cycle. They’re betting that an investment now will help them avoid a whole mess when some of the first TRID loans start to go into foreclosure (and borrowers try to fight back). Their people are learning a lot, but they are spending a lot.

Regulatory compliance in mortgage lending has become a strategic advantage. How well a lender handles TRID may affect how well it can compete against competitors in the coming years, or the outcome/price of a sale or merger.

Ben Giumarra is a risk management consultant with Spillane Consulting. He may be reached at BenGiumarra@SCAPartnering.com.