Groups Ask Congress for "Breathing Room" on TRID

There was an unusual degree of consensusrnat a Congressional hearing on implementation of the new Truth-in-Lending (TILA)rnand RESPA Integrated Disclosure Rule (TRID). rnAll four individuals testifying on behalf of different housing industryrninterests overwhelmingly agreed that, while implementation of TRID should<bcontinue as scheduled on August 1, there should be a grace period for enforcement.</p

TRID was developed over several years andrnseveral incarnations by the Consumer Financial Protection Bureau (CFPB), andrnwhile each witnesses at the House Financial Services subcommittee hearing wererngenerally complementary of the agency’s work, all encouraged the committee torninsist that a five month “hold harmless” period be put in place and that CFPBrnshould not begin enforcement of the TRID rule until January 1, 2016.  </p

CindyrnLowman, president, United Bank, Mortgage Corporation, represented the AmericanrnBankers Association (ABA) at the hearing. rnShe said that TRID’s objective of simplifying the disclosure process isrnworthwhile and commendable because the disclosure regimes developed under bothrnTILA and RESPA “have swelled in complexity and volume to the point thatrnborrowers are faced with so many documents to read, sign and initial that thernprocess has become tedious at best and counterproductive at worst. Truerndisclosure has become virtually meaningless.”</p

Industry and consumer groups have soughtrnfor years to streamline, and simplify this process, she said and while CFPB undertookrnintegrating the disclosures project in an open and responsive process, opportunitiesrnwere missed in the process. The new forms remain lengthy and intimidating to consumers.rnThe rules that lenders must follow are still confusing and difficult to applyrnand implementation will impose high costs on all lenders and consumers.</p

Both Lowman and Diane Evans, Vice Presidentrnat Land Title Guarantee Company and representing the American Land TitlernAssociation (ALTA) stressed that lenders cannot operate alone in implementingrnthe new rule.  Evans said in herrndiscussions with stakeholders the one clear message was that collaborationrnbetween all parties involved in the mortgage loan was essential.  “The new timing and accuracy requirements,”rnshe said, “make it impossible for industry to continue to operate in their ownrnsilos.”</p

Lowman said the new rules rework thernentire disclosure infrastructure for mortgage transactions and dispense with 40rnyears of legal precedent. Implementation requires that lenders, theirrncompliance software vendors, and other parties involved in the settlementrnprocess be given adequate time to ensure compliance and a smooth transition tornthe new regulatory regime. “New processes will be required for every bank, andrnthese processes must be tailored to each product type and each jurisdictionrnacross every state.”</p

The rule does not provide for a “testrnperiod” or other mechanism to ensure that the new rules and the compliance software,rnemployee training and other settlement service providers are prepared for thernnew regime.   In addition to banks and lenders, Lowman said,rnmany other parties are affected by this regulation including realtors,rnappraisers, title companies, settlement agents, software vendors and, mostrnimportantly, the consumer. Should any of these parties not be fully compliantrnon August 1, all other parties will be suffer from a domino effect-with lendersrnbearing the brunt of the liability.</p

She said this may mean that stoppingrnlending will be the only answer for the deadline.  “At my bank, we are still waiting for systemsrnfrom our third-party providers and do not expect some before the August 1rndeadline. This means, that as of the deadline, I will be able to take mortgagernapplications, but will not be able to close any loans where I do not havernsystems in place.”</p

Several of the witnesses cited readiness surveys.rn Linda Goodman, Director, Housing FinancernPolicy Center, The Urban Institute, cited an April study by CapsilonrnCorporation which found 41 percent of mortgage lenders were not ready for the implementationrnand only 12 percent felt “very prepared.”</p

Lowman said ABA found that 74% of banksrnare using a vendor or consultants to assist with TRID implementation; however,rnonly 2% of the compliance systems had been delivered by the month of Aprilrn(when the survey closed), and 79% of banks could not verify a precise deliveryrndate, or were told that they would not receive systems before June or even intornJuly.   Those dates do not take intornaccount, she added, the need to implement the new processes and forms, trainrnstaff, and test for quality assurance before bringing them on line.</p

Evans said 92 percent of ALTA members saidrnthey were on schedule for implantation or were confident they would be ready byrnAugust 1, and more than half had either updated their software or scheduled arndemonstration.  However she was concernedrnbecause much of the final training and implementation will take place during thernbusiest time of the year for real estate closings as thousands of families relocaternprior to the new school year. </p

The witnesses referenced continuingrnconcern over the “three-day rule” which requires a waiting period betweenrnissuing the “Closing Disclosure” or CD and the closing.  Any major change to the loans terms such asrnfrom a fixed-rate to an adjustable or a change in the APR requires anrnadditional three business day wait.  Lowman pointed out that a delay in settlement couldrnbe a huge imposition to a buyer. “In more cases than not, the buyer planned a wholernschedule around an expected settlement date, which likely involves moving homesrnand finalizing the sale of their current home. Having to push back thernsettlement date often has large costs to consumers. It can the lead to raternlock expirations, missed deadlines in back-to-back settlements, or in somerncases could even lead to cancellation of entire transactions. </p

Chris Polychron,rnPresident of the National Association of Realtors® (NAR) said that while thernthree-day period can be waived it can be done only for a “bona fide financialrnemergency” which, while sounding reasonable on its face, is actually extremelyrnlimited to items such as an imminent bankruptcy and not to situations such asrnincreased consumer costs or lost downpayments. </p

Goodman said, “To the consternation of manyrnlenders, the rules seem to be silent on what happens when the closing date is significantlyrndelayed. For example, the rule states that if the interest rate was not lockedrnat the point of origination, when the rate is locked, a new Loan Estimate mustrnbe provided within three days. It is unclear if a borrower can be charged for arnnew rate lock if the borrower contributed to a delay.”</p

Another concern, according to Polychron, isrnthat CFPB has made the lender ultimately responsible for the CD and itsrncontents. This has led to many lenders adding a requirement that any changes tornthe CD be approved by the lender but that ultimate lender may not be present atrnthe closing or even in the same time zone which could cause significant delays.rn</p

Evans raised another issue with the TRIDrnrule specific to title insurers; that it prohibits them from accurately disclosingrnthe actual cost of title insurance policies. CFPB has created a formularnwhich-in most states-incorrectly discloses the cost of title insurance, shernsaid.  In most states when both a lendersrnpolicy and an owner’s policy are purchased concurrently, the lender’s policy isrntypically issued at a discounted rate. However TRID requires disclosure of thernlender’s premium at its full rate then requires the owner’s premium to berninaccurately disclosed on the forms. rnThis is, she said, the only inaccurate information on the newrndisclosures. </p

In advocating for a delay in enforcement Lowmanrnsaid was notable that Congress did not mandate a deadline for implementation ofrnnew rules, clearly demonstrating that there was no urgency to action and Polychronrncited as a precedent the “break-in period” used by HUD when it revised RESPA inrn2010.  </p

He said that given the complexity of realrnestate transactions, no one can know for sure the degree to which the new rule willrnincrease the number of delays until the rule takes effect and is implemented.  During a “restrained enforcement period,rnindustry would operate under the rule and use the new disclosure forms but bernheld harmless in terms of liability if acting in good faith. The industry andrnthe CFPB can then collect data on problems and develop solutions to minimizerncostly and harmful impact on consumers.</p

And Goodman concluded, “Ultimately, TRID,rnif implemented properly, should result in a vast improvement in the consumer experience.rnLet’s give the lenders the breathing room they need to do this right.”

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