Mortgage

Programming for Integrated Disclosures

The challenges of drawing compliant, defensible mortgage documentation by Aug. 1

On Aug. 1, 2015, the forms previously known as the Good Faith Estimate and the Truth In Lending disclosures will be replaced with a new form called the Loan Estimate, which must be provided to consumers no later than the third business day following the submission of a loan application. In addition, the forms previously known as the HUD-1 and final Truth In Lending Disclosure will be replaced with a new form, the Closing Disclosure, which must be provided to consumers three business days before the loan is consummated. Our industry has taken to referring to these rules collectively as TRID, or TILA-RESPA Integrated Disclosure rules.

The art of programming dynamic documents

From a programming perspective, both the Loan Estimate and the Closing Disclosure start out as a blank “electronic” sheet of paper, upon which are imposed X and Y coordinates for the placement of data. Data is pulled from the LOS and used to populate the new forms.

Each field on the Loan Estimate and Closing Disclosure has a corresponding annotating reference within the Code of Federal Regulations. For purposes of programming the content within each field, the first guiding principle is to follow these parameters on data insertion: If the reference is clear and free from ambiguity, then the LOS data is directly inserted in that field.

An example of an unambiguous data point is the borrower’s last name. If the field is capable of different meanings, then a legal opinion might be required in order to determine the field’s content.

An example of such a data point is the Date Issued, since the date may be different if the Loan Estimate is electronically issued on one date, but necessity prompts mailing the Loan Estimate (i.e. “papering out”) on a subsequent date.

Finally, if the field requires a mathematical calculation, then mathematics drives the result, subject to rounding and correct calculation.

While this sounds straightforward, it might implicate the second rule depending on what should or could be included in the calculated result.

An example might be the inclusion of gift funds in cash to close, or the rounding of some calculations and the truncation of others.

The second guiding principle relates to the fluid boundaries on the electronic real estate. That is, an adjustable rate mortgage will have an adjustable payments table and adjustable interest rate table, neither of which is present when the borrower obtains a fixed rate mortgage.

The programming must be flexible enough to draw the table when required, yet move surrounding fields in place of the tables when the tables are absent.

Both the first guiding principle and second guiding principle illustrate the concept of dynamic documents, instead of static documents. The latter are akin to simple forms where the boundaries and text never move; text or mathematical calculations are simply inserted into prepared blanks within the documents. With dynamic documents, the document itself evolves as information is imprinted, drawing and re-drawing itself until completed.

Defensible documents — from the computer room to the courtroom

The Loan Estimate and the Closing Disclosure are tantamount to the left hand and the right hand, each clasping the other through the mortgage loan application process. Each is intended to be a companion to the other so that the consumer can readily see and assess all costs inherent with the contemplated mortgage.

But the Loan Estimate and Closing Disclosure are also traps for the unwary since inconsistencies between the two can cause compliance alerts.Viewpoint2

For these reasons, using the same technology platform/provider for preparation of both forms is ideal when it comes to minimizing errors.

Advancing to the end of the mortgage process and beyond closing, both the Loan Estimate and Closing Disclosure must be compliant (and defensible) to the end investor. Given the ambiguities within so many of the rules applicable to both forms, it is important to have a way to defend the programming logic used to define the output.

To that end, an attorney’s opinion advising on the applicability (or not), or the inclusion (or not) of data point makes the end product more compliant (and defensible) to the compliance officer, investor, and/or auditor.

To be sure, legal opinions are not always ironclad, but using a thumbtack to attach an attorney’s opinion along each path of the programming effort makes the end product highly defensible, from the computer room to the courtroom.

Human intelligence remains critical

As a general proposition, technology aids in the compliance effort when embedded tests check the data, again and again, for compliance with pertinent regulations.

But the advantage of technology ends if the programming becomes outdated because the continuous bombardment of newly issued regulations are not interpreted and incorporated within that programming.

Human error can be almost eliminated through technology, but a human intelligence remains essential to parse the language of an ambiguous regulation and decide upon an appropriate course of action.

 Never have technology and human intellect been so critical to the creation and delivery of mortgage documents, all of which is being done in the name of making the process easier for the consumer.

Most Popular Articles

3d rendering of a row of luxury townhouses along a street

Log In

Forgot Password?

Don't have an account? Please