Since the implementation of the Truth in Lending Act (TILA)–Real Estate Settlement Procedures Act (RESPA) Integrated Disclosure (TRID) rule on Oct. 3, mortgage loan originators and compliance professionals have been checking to make sure that TRID-related business processes are operating in a compliant fashion. And by April, as a matter of best practice, institutions should be conducting full-scale, six-month compliance reviews of their TRID systems and operations.
TRID is a very complex set of rules covering the way consumers are informed of the key features, costs and risks of a mortgage, and compliance requires major operational changes for mortgage originators and their third-party service providers. Focusing on certain processes and procedures can be key to effective compliance efforts. Here are six targ eted actions to review, revise as needed and certainly to implement if you have not done so already.
1. Automate as many processes as possible. Because human beings make mistakes that good systems do not, the best loan origination systems will have as many TRID decisions built into them as possible. For example, a good loan origina- tion system will know whether a loan is covered by TRID. This decision should not be up to a human operator. Origi- nation systems can also calculate dead- lines and send alerts when they are approaching. Finally, another important process that lends itself to automation is the ongoing calculation of the fee baseline (to determine if fees change more than 10 percent). This should al- ways be an automated process, not a manual one.
2. Centralize decisions that cannot be automated.
Since systems cannot automate every critical decision, the next best procedure is to centralize important TRID processes. This means lenders and brokers should not initiate disclosures or determine whether a valid change of circumstance exists. Loan Estimates and Closing Dis- closure forms should be generated by a centralized processing group. Likewise, chang e-of-circumstance decisions should be made by a smaller group of TRID experts rather than by widely dis- persed lenders or brokers. In addition, change-of-circumstance decisions should be made under the authority of a detailed policy or job aid to allow everyone in the process to act consis- tently with one another.
3. Implement an ongoing post-closing quality-control review.
As a quality-control exercise, all loans should undergo a post-closing compli- ance review. TRID is so complicated that this process should be added, if it is not already in place. Finding errors and correcting them immediately after the loan is closed may not stop restitu- tion of incorrectly disclosed fees, but it will help the lending institution steer clear of enforcement actions and private litigation.
4. Conduct a full-scale TRID compliance review within six months.
The magnitude of the TRID changes was so great that the entire mortgage origi- nation compliance program should be reviewed for TRID compliance within the first six months to correct anything that has gone off the rails or that was not set up correctly in the first place. This review should be comprehensive, and findings and corrective actions should be documented.
5. Keep a clear and clean audit trail of all critical decisions, especially the change-of- circumstance decisions.
Mortgage origination systems should have a place for user notes to be added to indicate the sequence of events, com- munications and other items that document a change to the loan midstream. This can include facts about the property or the borrower, notes from an appraisal and other information requiring a change of circumstance. This documentation is necessary to prove compliance with the regulation. It is helpful if the system has a search methodology to allow you to bring up notes quickly. Documents that are relevant to these decisions should be added in the system as well.
6. Issue new SSPLs whenever a new fee is added to a revised Loan Estimate.
Settlement Service Provider Lists (SSPLs) must be issued when the initial Loan Esti- mate is provided to disclose to applicants at least one provider of every settlement service. However, the TRID regulation is silent on whether the lender should issue a new list when a new provider is introduced due to a changed circumstance or a bor- rower-initiated change. If the lender does not issue a new SSPL with the new provider listed, the assumption will be that the con- sumer could not shop for the newly added service, and the fees will then fall into the Consumer Financial Protection Bureau’s (CFPB’s) “zero tolerance” category. The pru- dent action is to always issue a new SSPL.
To summarize, given TRID’s nearly 2,000 pages of rules, focus is key to effective TRID compliance. Focus on taking man- ual decisions out of the process wherever possible. Centralize the important de- cisions that cannot be automated. Document fully—notably in cases of changed circumstance. And especially now, review procedures often until the system checks out to be 100 percent compliant.