TRID: A Thorn In The Mortgage Industry’s Side


It’s been almost four months since the Consumer Financial Protection Bureau’s (CFPB) TILA-RESPA Integrated Disclosure (TRID) rules took effect on Oct. 3, and although it would be sensationalist to say that the complex set of rules has devastated the mortgage industry, as some predicted it would, there is solid evidence, at this point, that the rules are delaying closings, slowing originations and increasing the average cost per loan for mortgage lenders.

This past week, mortgage software provider Ellie Mae and the National Association of Realtors released reports showing that it took an average of 49 days to close in both December and November – up from about 42 days in October, with TRID cited as a likely cause.

Also, Flagstar Bank, in its recently released fourth quarter earnings report, says TRID was a contributing factor to a 32%, or $22 million, decrease in sales for the quarter. In the report, Alessandro P. DiNello, president and CEO of Flagstar, says although “the company took a careful approach with the implementation of TRID, taking greater control in creating and delivering disclosure documents,” it was, nevertheless, more impacted by the rules than other mortgage lenders due to Flagstar’s “predominantly third-party business model.”

“We experienced more of an impact than other bank originators,” DiNello says. “We are taking steps to address this issue while building market share in our distributed and direct-to-consumer retail channels.”

So, just how much of an impact is TRID – also known as the “Know Before You Owe” initiative – having on other mortgage lenders and vendors so far? To find out, MortgageOrb recently interviewed numerous mortgage executives from different segments within the industry.

“TRID is delaying closings primarily through the title and attorney industries (mostly the seller’s counsel), which were not ready for this change and are fighting it every step of the way,” says Brian Koss, executive vice president of the Mortgage Network, one of the largest mortgage companies on the East Coast. “They are often small offices with limited access to technology and qualified or trained staff. If they are consistent conveyancers, they represent a large number of mortgage institutions that each have their own software to learn, as well as their own interpretations of TRID.

“In fact, the lack of clarity in TRID has added great pain throughout the industry, since everyone is interpreting the regulations differently,” Koss adds. “This is creating issues with tech vendors that support different companies and is causing confusion among title companies over what is ‘standard’ and among investors buying loans from the market. Each investor seems to be using a different interpretation of the TRID guidelines, causing backups with warehouse lenders and in correspondent departments. Add to this the fact that the typical borrower does not do what they are told and often delays reviewing and signing documents – even though this new regulation exists to protect them – and you have extra stress and delays.”

Alec Cheung, vice president of product management and marketing at e-document technology firm eLynx, says, “The reported delays are not surprising, given what we know about the complexities of implementing TRID.

“It is, indeed, taking longer for loans to close because the closing disclosure is a new form and the industry is going through a learning curve,” Cheung tells MortgageOrb. “Getting the fees right on the closing disclosure is challenging, and when errors are discovered, it often requires closings to be rescheduled in order to allow time to fix and re-disclose. As a result, lenders are providing for additional time in order to ensure they get the closing disclosure correct.

“The challenges are mainly stemming from the collaboration required between lender and settlement agent,” Cheung adds. “Many lenders are utilizing manual processes at the moment to collaborate on and complete the closing disclosure. When one has to manually complete a new form that requires an added level of coordination between lender and settlement agent, not to mention lenders now taking over responsibility for the form itself, it’s expected that it’s going to take longer to complete this part of the process at the outset.”

Although mortgage due diligence firm Titan Lenders Corp. no longer provides origination-based closing functions and, thus, no longer has direct access to the reasons for closing delays, Mary Kladde, CEO and president of the firm, says there is growing evidence that lenders are failing to abide by the new set of rules, as evidenced by the high “fail” rates when loans originated since Oct. 3 are reviewed.

“In the capacity of executing whole loan purchase review for investors, I can tell you we are seeing extremely high fail rates in TRID compliance in correspondent submissions,” Kladde tells MortgageOrb. “Fail rates are impacted by investor interpretation of TRID. We have a couple of clients with 30% to 40% fail rates, while another has an 80% fail rate.

“Fail ratios are dependent upon how liberal or ‘to the letter of the law’ the investors are choosing to be in their interpretations of TRID requirements,” Kladde adds. “From the numbers of loan estimates and closing disclosures being produced on the transactions we’re seeing, it doesn’t surprise me that closing delays are being seen. I believe the disclosure and re-disclosure process are contributing to the delays, and zero tolerance for changes on figures like property taxes wasn’t well thought out when making up the rules for TRID. It’s another example of having non-mortgage people making up rules to regulate mortgage.”

Even segments of the mortgage industry that one wouldn’t expect to be affected by TRID are seeing some minor impacts. For example, Scott Pickell, vice president and chief appraiser at appraisal management and real estate owned management firm LRES, says although “TRID really has [had] little impact on the processing of appraisals,” it has had some impact on the “initial part of the process where appraisal fees change as a result of a property being complex, rural or outside the normal agreed-upon fee structure.”

“At those times, the lender must re-disclose to the borrower with the new fee structure, and this process could delay the appraisal timeline by a few days, depending on the system the lender uses for disclosure and how quickly the borrower accepts and signs the documents,” Pickell says.

Now that it has become apparent that TRID is causing at least some delays in terms of closings – not to mention the challenges it has created with regard to loan quality – the question becomes, “Are these problems going to persist, or will the industry learn to adapt?” There is also a question as to whether TRID has resulted in additional operating costs for lenders that will ultimately have to be passed off onto consumers.

“Like every extra layer of regulation that was added post-housing crisis, TRID ends up somewhere in the cost of the loan, but not all of that cost can be passed on to the consumer,” Koss explains. “The fixed costs of lending have tripled since the crisis. The bigger, long-term question for lenders will be, how do you successfully lend to low-cost areas and not lose money on each loan? How do you do the right thing with first-time buyers and participate in rural lending and state bond programs when the Mortgage Bankers Association says it costs more than $7,000 to execute a loan? It’s a dilemma for the industry and clearly an unintended consequence of trying to protect buyers from bad lenders.




“In the end, the buyer is essentially getting forced-place insurance at a high cost yet does not take advantage of all the information and disclosures that are provided; in fact, they find it all a nuisance,” Koss adds. “The forms are much better, and most of the new flow makes sense, but at what cost?”

Cheung says in his view, the challenges posed by TRID “will absolutely be addressed” as time moves on.

“As lenders switch to technology that can simplify the collaboration between lender and settlement agent, slower manual processes will give way to more efficient automated ones,” Cheung says. “In addition to better collaboration, lenders will also soon be able to obtain more accurate fees – down to the specific title agency doing the closing and the specific county where the property resides – so that the process of creating the closing disclosure is less error-prone.

“Lenders are bearing additional costs now, but over time, these temporary transition costs will abate,” Cheung adds. “What may not come down are the higher costs of compliance in general. The regulatory burden is heavier now with the likes of ‘Know Before You Owe’ and [the CFPB’s ability to repay/qualified mortgage rules], and consumers may, indeed, bear some of this cost through higher rates or fees.”

Kladde agrees that the problems posed by TRID “will be addressed.”

“We have no choice but to address them,” she says. “Failure rates are starting to decline from the 90% failure rate we saw in the first 60 days of TRID implementation. It just takes time to digest the change. With respect to cost, yes, TRID has resulted in additional operating costs. The cost of technology solutions has gone up, and the function of the time it takes to complete data entry for testing compliance of multiple loan estimates and closing disclosures has increased four to 10 times, depending on how many disclosures and re-disclosures are provided in a file. This in itself creates more labor costs – which, ultimately, will be passed to the borrowers.”

(This is the first in a multi-part MortgageOrb series focused on the impact that the Consumer Financial Protection Bureau’s TILA-RESPA Integrated Disclosure rules are having on the mortgage industry thus far. To read Part 2, click here.)

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