Ben Giumarra
Confusion surrounding the switch to the TILA-RESPA (TRID) integrated disclosure rule continues to challenge the mortgage lending industry.
Think you’re alone? You’re not. I have yet to see a single TRID loan without at least one mistake, and believe me I’ve seen too many of these things. Don’t fire your compliance officer if your TRID files have 100 percent errors. Consider a promotion if there is a 50 percent error ratio. And if the error ratio is less than 50 percent, you should fire whoever conducted the audit because that just can’t be right.
But while the number of errors are high, the number of serious errors (resulting in consumer harm or significant confusion) is relatively low. The great majority of TRID-related mistakes is related to formatting and fee placement, rather than more serious errors with timing or tolerance limitations.
But with a rule that allows even small mistakes to be “cured” within 60 days, mortgage lenders are racing to issue revised disclosures on 100 percent of loans – requiring additional manpower in a time when quality closers and compliance personnel are a scarce commodity.
We do expect this high percentage of errors to continue for several months, meaning the process of auditing 100 percent of loans files (affectionately dubbed “the TRID autopsy”) will continue perhaps into 2017. Painful as it might be, lenders going through this process now will have an advantage over lenders who start after 12 months of TRID loans are closed. Many mistakes are attributed to misinterpretations or system setup issues and can be caught and corrected (avoiding having a whole portfolio affected).
Why so many errors? Well, one reason is that the rule is fundamentally different from the prior regime. The HUD-1, GFE and TIL forms that were required were model forms – the precise formatting was not expressly required. Contrast that with the loan estimate and closing disclosure, which must match the appendix forms exactly – capitalization, shading, spacing, etc. The only variation allowed is the font type.
Some Common Findings
Pre-paid property taxes disclosed in the wrong location. “Prepaids” include any payment for a future recurring obligation where the payment is due prior to the first scheduled payment (e.g. February taxes when the loan closes in January). We’re seeing many items that should go as prepaid in Section F forced into other sections of the closing disclosure (CD), such as Section H or K.
Homeowner’s association dues are not disclosed or not disclosed correctly. This should come in on page 1 and page 4 of the CD.
Inaccurate/missing contact information on page 5. It’s rare to find a loan where all required information is actually completed. Even when it is complete, the information will be incorrect; for example, the paralegal will be listed instead of the closing attorney.
Seller’s CD missing or seriously incorrect.It is the lender’s responsibility to collect a copy of the closing disclosure provided to the seller at closing, so you shouldn’t have an attorney arguing against disclosing this to your institution.
LE and CD don’t match. Fee descriptions need to match. For example, if it’s called a “title – settlement agent fee” on the LE, it cannot be called “title – closing attorney fee” on the CD. The version used must also match; the standard version of the CD cannot be used if the alternate form (intended for transactions without a seller) was used for the LE.
Closing costs financed missing/inaccurate. One source of this error is that a different formula is used to calculate closing costs financed on the LE than is used on the CD (the LE doesn’t account for costs paid before closing) and either the system or personnel use the wrong one.
Our advice to mortgage lenders? First, avoid any interviews with Sean Penn (we hear he’s working with Cordray). Beyond that:
- Focus efforts on issues that can cause the most consumer harm. There’s only so much time in the day. Remove any risk that you’re overcharging borrowers for attorney’s fees before you fix a formatting error.
- Brace yourself for revisions to almost every CD (in 60 days).
- Set clear expectations for closing attorneys – many attorneys are trying to do well, but are also trying to accommodate different interpretations and processes from other lenders.
- Require an ALTA settlement statement (not a replacement for seller’s CD).
- Make sure staff members disclosing the LE and CD are comparing your disclosures to the CFPB’s examples – again, these forms are not models; they are mandatory.
And in my father’s honor (whose birthday is today) – as John Wayne once said, “If everything isn’t black and white, I say, ‘Why the hell not?’” Those trying to get clear answers on regulatory issues can certainly appreciate that!
Ben Giumarra is a risk management consultant with Spillane Consulting. For 25 years, Spillane Consulting Assoc. has provided file review for quality control and compliance, as well as training, consulting and other services to financial institutions across New England.
