Getting the TRID regulation correct is a pass/fail. Issues with your representations and warranties, severe financial remediation and unnecessary chaos are not how you want to spend your time in the Fall/Winter after the start of TRID. This means getting it right and testing it prior to August 1, 2015.
Remember the intent of the law:
TILA-Truth in Lending is to:
-Protect consumers against inaccurate and unfair practices.
-Impose limitations on certain closed-end home mortgages.
-Delineate and prohibit unfair or deceptive mortgage lending practices.
Therefore, when you consider your “alerts” and “triggers” within your workflow you need to ask yourself whether the change affects the protection of the consumer and most importantly negatively affects the cost to the consumer. If the answer to that is “yes” then you MAY need to issue new disclosures; but not always! It depends on the fee, the tolerance, or change of circumstance. I hope that by now all of you have detailed workflows that are diagrammed. The CFPB will ask you for those, so if they are not done it’s a great time to start.
Legal interpretations by your counsel may vary and be somewhat “grey” in some areas and more black and white in other areas. A good risk mitigation strategy is to be cautious, without interrupting the workflow process too much. As Jerra Ryan, VP of Compliance at Cherry Creek likes to put it “define your companies’ black and white” Also, provide a rational thought process to all of your decisions should you ever need to defend it.
The nature of processing a mortgage loans is that changes will occur. How you manage and monitor those changes are key.
Application & Processing Workflow:
- You have tolerances on some fees and not on others.
-Have fees been correlated to any alert or trigger that needs to occur?
-Have you programmed the ability to prohibit fee changes to those with no tolerance?
-Does your workflow contain a Change of Circumstance authorization before fees can be changed?
-Does your workflow contain a Change of Circumstance authorization or escalation, and a 10% tolerance calculation before a loan estimate or closing disclosure is issued?
- The items with tolerance do not need re-disclosure until the 10% Threshold has been breached individually or as an aggregate of the changes. So how will you know when that occurs on a file? How will you document that? Who will perform the calculation to ensure compliance?
- While it may be tempting to just re-disclose every time something changes, you will have to remove the re-disclosures that were not necessary from your compliance testing later, and that can be a big ol’ mess! This was brought to our attention by Ben Olson who led the development of TRID at the CFPB. So it’s better to get it right in the beginning to keep it simple.
- How will your system distinguish the difference between TRID loans and non-TRID loans? Some loans, like reverse mortgages and HELOC’s, require the old set of disclosures. This will require two workflows and two different alert triggers. Some lenders are using separate systems to make this easier.
- How will a loan application be triggered in each of your channels of business? Note: The #7 “catch all” that used to exist will no longer be allowed.
- What are your business days for disclosure timing?
- How are you going to send and track receipt of your disclosures?
- Who is going to send out the disclosures? If your sales force or processors are doing this presently, you may want to consider centralizing the disclosure function to make compliance monitoring easier and provide an audit trail on the disclosures for the file.
- What are the specific change of circumstances? How will you be notified when there is a COC?
What is your pre-closing audit and check process?
Stay Tuned as I’ll go through the Underwriting & Closing considerations in Part Two of this series.