There have been many rules and regulations issued in the wake of the financial crisis last decade, but few have been as unpopular and controversial as TRID.
The regulators who drafted the Consumer Financial Protection Bureau’s TILA/RESPA Integrated Disclosure Rule may have had good intentions, say credit union observers, but the end result was a regulation with many shortcomings. What’s even worse, they say, is that the CFPB continues to kick the can down the road when it comes to addressing specific concerns.
In interviews with Credit Union Journal, compliance experts and credit union executives outlined the most crucial fixes TRID needs, starting with the ability of lenders to correct simple, inadvertent errors.
Brandy Bruyere, VP of regulatory compliance for the National Association of Federally-Insured Credit Unions, said the CFPB allows lenders to fix non-numeric clerical errors, but not errors involving numbers. For the latter, the bureau refers lenders to the Truth In Lending Act or to the preamble of the TRID rule itself.
“Even something as simple as a mistaken phone number, which does not affect the transaction, cannot be fixed,” she said. “Referring people to the Truth in Lending Act is not helpful because TILA does not have specific commentary — which means you have to consult with an attorney every time you have an error.”
If a CU does have an error in a disclosure form, it can be stuck holding the bag on a fee, Bruyere continued. Prior to TRID, she said lenders had the ability make changes to settlement charges leading up to closing a loan. With TRID, there only are a few items that can change up to 10 percent — but for many items there is zero tolerance for changes.
“Many credit unions offer no-cost loans, and do their best guesstimate on the cost of fees,” Bruyere explained. “If the estimate is the appraisal will cost $500 and it ends up being $400, the cost is refunded to the borrower, even if that was not the intention. The unforgiving regime dictates it cannot change from the loan estimate to the disclosure.”
Michael Christians, senior federal compliance counsel for the Credit Union National Association, noted previously an appraisal fee could vary by up to 10 percent from the initial estimate to the closing document.
“Appraisers are so busy, they are adjusting their fee based on the demands of the market,” he said. “Credit unions are at the mercy of the appraisers and have to eat the difference because there is no way to adjust the fee.”
Christians said CUNA also is lobbying the CFPB to allow cures for technical violations after confirmation. Selling a loan to the secondary market can also be problematic because many parts of TRID are subject to different interpretations.
“There needs to be a mechanism to cure minor technical violations so the transaction can be marketable on the secondary market and not have to keep the loan in-house,” he asserted. “It could be as simple as providing a revised Closing Disclosure document.”
Title insurance problems
Both Bruyere and Christians took issue with TRID rules related to title insurance premiums. They said the CFPB chose a fixed formula for title insurance that does not account for the possibility of a discount.
“Some fees are paid by the seller, resulting in a negative number,” Christians said. “The rule says one thing, but there is no guidance, leaving credit unions wondering how to properly fill out the form. The main point of the TRID rule was to make for a better-informed consumer, and a negative number for title insurance does not make sense to the member.”
Other issues Christians and CUNA have with TRID include the closing period prior to closing. Both suggested the waiting period should be reduced or allow consumers to waive it.
“We have gotten consistent feedback that the Loan Estimate and Closing Disclosure are not doing what was promised,” Christians continued. “Members have significant questions about the Closing Document. The disclosure scheme, based on its current design, is not making the member better informed or more knowledgeable than the previous scheme.”
Bruyere noted the CFPB did provide sample forms to demonstrate what it expects lenders to do, but she said the problem is the forms are overly simplistic compared with real-world transactions.
“Plus, the sample forms do not show a fact set to illustrate the scenario that was used to fill out the form,” she said. “The sample forms are not as helpful as they could be given the highly complex and technical nature of the rule.”
Burdensome effect on mortgage operations
Elizabeth Eurgubian, CUNA’s deputy chief advocacy officer and senior counsel, told Credit Union Journal the trade group is, in general, in favor of combining the formerly separate TILA and RESPA disclosures and making them easier for consumers to understand, but the group has problems with the way the agency went about doing it.
Of particular concern, she said, was the lack of safe harbors so credit unions are not punished for making wrong decisions, especially when the rules are ambiguous — and when so many rules came out at once.
“We do not want to see enforcement actions imposed on credit unions at a later date. Many parts of the rule are not clear and we have asked the CFPB for some guidance,” Eurgubian said. “When you have all these rules, in a short period of time, you might have credit unions that do not do a high volume of mortgage loans getting out of the space, which is bad for consumers. We have been communicating to legislators and the CFPB that we want credit unions to remain in this space. Some of these requirements should take into consideration the credit union business model.”
CUNA’s Christians said TRID continues to affect credit union mortgage lending operations.
“Credit unions have struggled substantially with the implementation process. Many are at the mercy of third-party vendors to have the forms ready and have the loan origination systems mapping the data correctly,” he said. “Some were not ready by the implementation date. Some had systems that were outdated, so the credit union had to choose whether to stay in the market by filling out the forms manually, undergo a core conversion or just exit real estate lending. We see this especially in the smaller credit unions. Smaller credit unions do not have the resources to keep up with these new regulations, so that takes away an option for consumers.”
Where do CUs go from here?
Amy Moser, VP mortgage services for the $6.7 billion-asset Mountain America CU in West Jordan, Utah, said credit unions will need to huddle up with their compliance teams to review the amendments the CFPB made to TRID in July.
“They need to determine how the changes will affect them and what their current practices are in relation to the changes,” she said.
Moser said the driving force behind TRID was to make obtaining a mortgage transparent and easy to understand for the consumer and protect them from “bait and switch” with closing costs, interest rates and loan terms at the closing table. She said the biggest hurdles involve training, technology and communication.
Key questions credit unions to ask, Moser said, include: How do you retrain your team to understand and work with the updated regulations, forms and wait times? Do you have the technology that is going to support you moving forward in an effective and compliant manner? And, does your team have the skills to positively communicate with borrowers, real estate agents, title companies and other vendors?
“Most lenders were worried about their ability to deliver high levels of service to their borrowers within the required time frames needed and worried about the unknown of working with the new TRID requirements,” she said. “For example: In cases where two closings are tied together, if a clerical error is made delays can produce a domino effect and hold up both closings for multiple days. Fast forward to today and you can see that while the TRID regulation is not perfect, lenders have found a way to work with it and still deliver high levels of service.”
Tim Mislansky, chief lending officer for the $3.6 billion-asset Wright-Patt Credit Union and president of the myCUmortgage CUSO, both in Beavercreek, Ohio, said the good news is that TRID was well intended. The bad news: He’s not so sure it’s making good on that intent.
“What is unclear is, are consumers really better off with the new disclosure? Do they better understand their closing costs,” Mislansky asked. “If the cost of the new regulation is being passed on to borrowers — thereby making homeownership more expensive — is that a benefit?”
Any positives to TRID?
NAFCU’s Bruyere could only come up with one positive with TRID, and even that is not certain.
“There is a proposal to fix adjustments when the loan gets closer to closing. We are happy to see that, even though it is not finalized yet.”
“The forms have been in play for almost two years now. The point was to make things more clear and understandable to consumers. I am not aware of any studies that demonstrate that,” she said. “I think [lenders] have adjusted to the rule, but it has meant some credit unions have had to scale back or restructure products. At the end of the day, credit unions want to help their members, so they have been trying to find ways to maintain their offerings.”