Worried about noncompliance? Biggest TRID Violations in 9/10 Mortgages

Will Lenders or Investors Experience Losses for TRID Liabilities?

If you’re a mortgage lender, compliance is essential. Despite the latest Consumer Financial Protection Bureau (CFPB) regulations, you must comply to stay in business.

What does the TRID landscape look like for mortgage lending, and how do you secure a better process to avoid noncompliance? A report conducted at the close of 2015 by Moody’s Investors Service found that TRID violations were common among the majority of loan originations.

Many third-party firms investigated a collection of loans for compliance, and after reviewing a number of recent mortgage loans, found that over 90 percent contained TRID violations. Many lenders experience issues with TRID must act now to implement changes or face the penalties that follow noncompliance.

The report conducted by Moody’s Yehudah Forster and Lima Ekram indicated that most of the noncompliance issues found within the loans were only minute technical errors, but the high percentage of these noncompliance issues or TRID violations reveal that mortgage lenders may be struggling to implement effective process to comply with the CFPB’s new regulations. Even if the problems appear to be technical in nature, Moody analysts stated that these errors still count as noncompliance, “such as the need to use the same spelling convention for counterparties or the absence of a required hyphen.”

The Cost of Noncompliance for Lenders

An abundance of TRID violations, according to Moody’s analysis, is a credit negative for investing in mortgage bonds, because there is an increased probability that such loans will be added to RMBS pools in the future. This noncompliance problem could cause delays in loan securitization, since RMBS issuers may be reluctant to commit to loans with such compliance issues.

Moody’s report was the result of a review by third-party firms with a total number of 300 mortgage loans from more than a dozen different lenders. Although there are concerns of how liability will affect RMBS investors, Fitch Ratings estimates that the loss will be no greater than $4,000 for statutory damages and the threat of lawsuits as the result of TRID noncompliance will remain at a low level of risk.

Lender Liability for Technical Noncompliance

A letter from the CFPB to the Mortgage Bankers Association (MBA) reconveyed the liability of lenders for such “technical” errors in mortgage loans. The CFPB stated that the Federal Housing Finance Agency and Federal Housing Administration will not be conducting routine loan reviews for technical noncompliance following TRID where a good faith effort has been made by the lender.

The CFPB is taking a “corrective and diagnostic, rather than punitive” approach. In addition, the letter stated that monitoring for TRID compliance with regulations will remain focused on, “whether companies have made good faith efforts come into compliance with the rule.”

Liability outlined in the CFPB’s letter to the MBA<:

• There is no general TILA assignee liability unless the violation is apparent on the face of the disclosure documents and the assignment is voluntary. 15 U.S.C. 1641(e).
• By statute, TILA limits statutory damages for mortgage disclosures, in both individual and class actions to failure to provide a closed-set of disclosures. 15 U.S.C. 1640(a).
• Formatting errors and the like are unlikely to give rise to private liability unless the formatting interferes with the clear and conspicuous disclosure of one of the TILA disclosures listed as giving rise to statutory and class action damages in 15 U.S.C. 1640(a).
• The Listed Disclosures in 15 U.S.C. 1640(a) that give rise to statutory and class action damages do not include either the RESPA disclosures for the new Dodd-Frank Act disclosures, including the Total Cash to Close and Total Interest Percentage.

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SOURCES:

TRID Violations Found in 90% of Recently Reviewed Mortgages

RMBF Investors Face Low Risk on TRID Compliance