Consumer Finance Insights
November 5, 2015

First Month of “Know Before You Owe” Better than Expected

A month has passed since the new TILA-RESPA Integrated Disclosure (“TRID” or “Know Before You Owe”) requirements went into effect on October 3, 2015, and while the transition has not been completely smooth, it has gone better than many expected. Below is a recap of some of the issues that have arisen during the first month of TRID.

The industry has, predictably, continued to struggle with some of the requirements the new rules impose, and as lenders adapt to the new rules, consequences on other stakeholders have become more pronounced.  For instance, mortgage brokers are finding it difficult to comply with TRID, and particularly the requirement that the Loan Estimate be given to the borrower within three days of the borrower having submitted enough information to complete the application:  if a broker tentatively finds a lender for a loan but the lender ultimately does not accept the loan, the broker must shop the loan around again and find another lender within the remainder of those first three days.  Brokers may have to adjust their business models slightly in order to ensure that they can find a lender as quickly as possible for every loan.

But apart from the challenges that were bound to arise because of the way the rules are written, several potential problems worrying the industry have, fortunately, turned out not to be as bad as feared.  In the days immediately following October 3rd, there was concern about how implementation of TRID was going to affect the rate of loan applications.  The run-up to October 3rd saw a surge of mortgage applications as consumers and lenders rushed to process applications before October 3rd, and then during the first week after TRID, loan application volume dropped by 27.6% compared with the previous week.  Fortunately, that volatility seems to have evened out, at least for the time being, and analysts are still projecting that 2016 will be a strong year for mortgage originations.

TRID also made the news after the October 19th Mortgage Bankers Association’s Annual Convention in San Diego, when CFPB Director Cordray said in his remarks that he had been “disturbed” by reports of poor performance on the part of vendors in making the switch to TRID.  His comments renewed fears about how and when TRID will be enforced, but so far there has not been any public action taken in furtherance of Cordray’s comments.

And finally, concerns about whether the CFPB would grant – and honor – a grace period for lenders to come into compliance with TRID seem to have been at least somewhat allayed.  On October 2nd, the CFPB issued a letter to the mortgage industry reiterating its assurances that initial examinations for compliance with TRID would focus on good faith efforts to comply with the rules.  Efforts to formalize the CFPB’s informal grace period are still underway: H.R. 3192, which would prohibit enforcement actions being brought against lenders for noncompliance with TRID until February 1, 2016, passed the House on October 7, 2015 and is currently being reviewed by the Senate.  The White House has indicated that President Obama will likely veto the bill if it passes the Senate, however.  In the meantime, Fannie Mae and Freddie Mac have issued letters (available here and here) stating that, in recognition of the “enormous efforts” that their lenders and servicers have made to comply with TRID, and of the fact that some lenders are still working to come into full compliance with the new rules, “until further notice, [Fannie Mae and Freddie Mac] will not conduct routine post-purchase loan file reviews for technical compliance” with TRID.  And on October 16, 2015, the FHA also announced that “it will not include technical TRID compliance as an element of its routine quality control reviews,” though unlike Fannie and Freddie, the FHA grace period has an expiration date of April 16, 2016.

All in all, the transition to TRID has been smoother than many expected – almost certainly a result of the months of preparation and the substantial investment of time and resources by the mortgage industry in order to comply with the new rules as fully as possible.  As we move into the second month of TRID, hopefully that effort will continue to pay off, the process will continue to smooth out, and remaining challenges facing the industry will get resolved.

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