The CFPB’s nearly 2,000-page document includes specific details on what these Integrated Disclosures must look like, mandating that the HUD-1 Settlement Statement, Good Faith Estimate and Truth-in-Lending Disclosure be combined into a format that consumers will more easily understand. Previously, these had been separate disclosures provided to consumers at different stages of the loan process.The Loan Estimate combines the GFE and the Initial Truth-in-Lending Disclosure while the Closing Disclosure combines the HUD-1 and the Final Truth-in-Lending Disclosure.
As lenders and technology companies began reviewing the rule, it became apparent that these new Integrated Disclosures would be a living, dynamic document and unlike anything the industry has ever had to produce. One example that will impact technology systems is the specific requirements on calculations and required data in the formatting of the Loan Estimate and Closing Disclosure.
With awareness of these significant changes, it’s now time to implement. To do so successfully, lenders, technology vendors and regulatory agencies have partnered to build out strategies. Over the next two months, they’ll continue to share ideas, address questions and potential issues and determine best practices and solutions. Together, meeting the Aug. 1 deadline is possible, and here’s why.
DETERMINING THE IMPACT TO SOFTWARE SYSTEMS
First, the technology industry identified the impact TRID would have on current systems. After careful review, a “system overhaul” is what came to mind for many. Current systems were clearly not sufficient for producing the new disclosures; therefore, enhancements, changes and updates were necessary. Through the partnership, new data fields were identified, as well as new functionalities, new calculations and other vital parts required to build the Integrated Disclosures.
There is also an impact to dual systems. Loan transactions covered under TRID are required to use the Loan Estimate and Closing Disclosure, whereas loans that are exempt from the final rule require use of the HUD-1, GFE and TIL disclosures. Systems must be prepared to make the distinction between those loans so correct disclosures are generated and lenders maintain compliance.
Data requirements will also be impacted. TRID will require new calculations, such as the best and worst case examples of payment changes resulting from conditions existing within the loan. New data elements have been identified and revised data standards are needed to support the new disclosures. These data standards exist in the Mortgage Industry Standards Maintenance Organization 3.3v and also later versions under development.
Last March, Fannie Mae and Freddie Mac jointly released the new version of the Uniform Closing Dataset, which follows the MISMO 3.3v. This dataset has 899 distinct elements for the Closing Disclosure. Of these elements, 827 are identified as CFPB form requirements and the remaining 72 as GSE requirements.
Once the full impact to existing software systems was identified and understood, the next step was working toward the implementation process.
TECHNOLOGY AND IMPLEMENTATION CHALLENGES
Identifying the impact TRID has on existing systems is only half the battle. A host of technology and implementation challenges still exist, but that does not mean lenders cannot meet the Aug. 1 deadline. What it does mean is that lenders must think differently, plan ahead, strategize and solve issues that arise as the process moves ahead. The greatest challenge, however, is time. The industry has already spent an enormous amount of time understanding the new requirements. Because the rule was finalized late (in November 2013) and required a long lead time to clarify and understand it, technology firms have had a significantly shorter timeframe to develop and test software.
The CFPB, along with Fannie Mae, Freddie Mac, Ginnie Mae and other industry partners, has been instrumental in ensuring the industry has a solid understanding of the new rule and its requirements. Many hoped the deadline would be extended or a grace period provided; however, the CFPB has made it clear that the Aug. 1 deadline will remain. As a result, the mortgage technology industry has accelerated its efforts.
MEETING THE COMPLIANCE TECHNOLOGY NEEDS OF LENDERS AND SERVICERS
For lenders and servicers, the primary concern is whether technology vendors will meet the deadline. In response, vendors are working tirelessly to make sure the technology is in place to meet both the regulatory deadline and the compliance needs of lenders and servicers. In fact, this topic was a big focus during the Mortgage Bankers Association’s National Technology in Mortgage Banking Conference & Expo 2015, with many vendors heavily promoting that they are “TRID ready.”
In addition, vendors believe it is critical to maintain good relationships with clients that are built on trust, and it starts with keeping them informed during the implementation process. Lenders and servicers have high expectations — and rightfully so. To meet these needs, information sharing is vital. Up to this point, vendors, lenders and even regulators have successfully done so by holding one-on-one discussions to help understand the planning process, work effort and progress status. WebEx presentations are also being utilized for additional training and updates.
Organizations are building teams of employees to serve as experts in their fields and assist in system modernization. Many are dedicating extended work hours to designing, developing and testing the modernized systems to ensure compliance.
TECHNOLOGY IS STEPPING UP TO THE PLATE
To successfully implement TRID, technology is stepping up. Not only is it important that vendors and servicers focus on technology readiness, they should also set their sights on how advanced the modernized system will be. The new generation of software systems will be far superior to anything before, propelling the industry forward.
While major enhancements have been made to address the pain points lenders and servicers face right now, that’s not all. In addition to the Integrated Disclosures, technology vendors are making enhancements to innovate and drive profitability. For instance, technologists are building better workflow functionality, improving data capture, enhancing functionality to trigger alerts for non-compliance, building out task-driven functionality within systems, enhancing tracking capabilities to allow for better accountability in the workflow process, and so on.
While the next couple of months will certainly be stressful, we are embarking on a journey toward complete mortgage technology transformation. These new systems are perhaps what the industry needs to move toward greater efficiency and profitability, which is an exciting time for our industry.