As I speak daily to different MBA members, one constant topic of late among our residential members has been the recent implementation of Know Before You Owe (TRID) rule.
In the run up to TRID this past October, many predicted pandemonium for homebuyers. And although concerns that consumers might face difficulties or delays in securing mortgages have not yet played out, that was thanks only to the monumental efforts of lenders and their staff. However, while lenders continue to adjust to the new rule, more clarity is needed from the CFPB.
The costly system changes, staff training, and business partner education that lenders engaged in to prepare for TRID have now been replaced by the deployment of massive amounts of human capital to ensure that loans get closed on time in the face of vendor issues, inconsistent investor interpretations and inadequate preparation by some settlement service providers.
TRID implementation has been especially problematic for smaller lenders, who are incurring extra costs that could be avoided were the CFPB to provide additional clarity on a wide variety of issues in the rule. This cost puts such a burden on small lenders that the viability of their businesses could be affected as a result.
Additionally, lenders are facing confusion over lack of an explicit guarantee of protection from regulatory and civil liability. There are a number of open regulatory interpretations to issues that impact the consumer’s ability to sue their lender, and the investor as the assignee. Are we really serving consumers when loans can’t be sold because of rounding errors? Because the time stamp has the wrong time zone? Because the form is shaded wrong? Or because the investor has a different interpretation of what “assumable, in certain circumstances” really means?
This isn’t consumer protection. It is sand in the gears of the secondary market, and if not addressed soon it will begin to impact market liquidity and cost consumers through reduced access and higher costs.
The current situation is a byproduct of unclear rules, unwillingness to provide written guidance, and fear of litigation by investors and due diligence companies. Whether the investor fears are justified or not, they are real — when lenders face legal settlements of tens or even hundreds of millions of dollars for minor mistakes in FHA loan files, it changes behavior. What we are seeing on TRID is a consequence of that environment.
While the CFPB has offered assurances that it would not engage in enforcement actions against companies making a good faith effort to comply, it is unfortunately not enough. We still need better guidance from the bureau, along with expanded cure opportunities and private litigation protection for minor TRID issues. MBA is continuing to engage the CFPB for further clarification and we are listening to our members to identify ongoing issues with TRID implementation.