Jewelers have often cited the “Four C’s” of a diamond’s quality – carat, cut, clarity, color. These four standards help consumers judge the quality of a diamond, and the “Four C’s” provide a simple method for remembering the keys to a valuable gem.
When it comes to mortgage compliance, lenders must also juggle a variety of factors to ensure that all standards are met. The complexity has only risen over the past five years as various pieces of the Dodd-Frank Law have come into effect.
One of the most significant changes is coming up August 1, when the new TILA-RESPA Integrated Disclosures (TRID) rules go into effect. After that day, mortgage lenders will have to issue a new up-front disclosure document called the Loan Estimate. The Consumer Financial Protection Bureau (CFPB) did a number of consumer studies, and based on consumer feedback they have designed two new forms, combining the information from the previous Good Faith Estimate (GFE) and Truth-in-Lending (TIL) into a single set of documents. Any loans with an application date of August 1 or later will also need to use the new Closing Disclosure to close the loan at the end of the origination process. This new form requires several changes from the current loan closing process.
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Just as jewelers can use the Four C’s to guide diamond quality, lenders can rely on the “Three C’s of TRID” – comply, communicate and cooperate – to ensure that all processes are ready, staff trained and compliance requirements met.
Comply
A common misperception is that the TRID rule is a forms and document rule. While new forms are certainly a component of it, lenders deal with form and document changes regularly. The new forms and documents, while challenging, do not present the level of difficulty and change that the procedural aspects of the rule convey.
On the other hand, the process for closing first lien mortgage loans will change dramatically come August of this year. Under the new processes, the lender has the burden for issuing the new Closing Disclosure, whereas today the Title/Escrow agent provides that service.
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All mortgage lenders originating residential first lien mortgages will have to comply with this rule and it’s a daunting task for many. Given that challenge, the other two “C’s of TRID” can help ensure your success in complying with this rule.
Communicate
The final rule has been out for a year and half, and the industry has had ample notification of the deadline. Yet there are many organizations in the lending industry that have not communicated to their employees, their partners and their providers what is needed to prepare. Communication needs to cover at least the following three bases:
- General overview of what the rule is and how it will affect the lenders’ and partners’ business and when it goes into effect. Every employee in every organization who participates in the mortgage lending process needs to know this.
- What are your firm’s plans to address the rule? How will you be doing testing and validation of the new forms and procedures? When will you be training your staff and potentially your partners (title/escrow firms, brokers, realtors, etc) on how you will comply with the rule?
- How should an employee or partner get help or support if they have questions? Will there be online resources to access? Will there be a telephone number or group to call for help?
By ensuring that everyone involved knows what the rule is, how you plan to address it and how they get help in the event of a question or problem, you will dramatically increase the probability of success in executing against the regulatory requirements.
Cooperate
As mentioned previously, the major challenge with the TRID rule is procedural, not the form and document changes.
Requiring lenders instead of the Title/Escrow agents to issue the closing document will require many parties in the lending process to work together more closely and in concert in order to make targeted closing dates. Final closing fees will need to be determined as many as eight to 10 days before the closing date depending on how the borrower chooses to receive their documents.
You need to be thinking about cooperation with all of the parties involved in the loan process. This includes property inspectors, appraisal firms, realtors and settlement agents, amongst others. Without strong communication among these parties, it will be very difficult to get the final fees and issue the Closing Disclosure on time. Not being able to make timely closings has many implications, including expiring rate locks, expiring purchase contracts, impacting secondary or tertiary closings dependent on the funds from this closing, etc. It is a lawyer’s playground as soon as several of these circumstances happen, and the best way to stay ahead of that game is to have a plan for cooperation with your clients and partners.
All in all, the TRID rule will have a big impact on our industry. The new forms do seem to be easier to understand and hopefully will provide a better experience for our borrower customers. But lenders will bear the burden and expense of the regulation. Those who are on top of the Three C’s of TRID will be best prepared to excel under the rule while other firms struggle.