The dust that surrounded the tectonic shift that was the implementation of the Consumer Financial Protection Bureau’s TILA-RESPA Integrated Disclosures rule in October is just now beginning to settle.
Opinions on the impact of TRID vary wildly depending on who you ask, giving insight into a disconnect that exists between the housing industry and the regulatory body that oversees it.
In a recent speech, CFPB Director Richard Cordray compared the October implementation of the CFPB’s new TRID rules to Y2K, telling the Consumer Federation of America Financial Services Conference that the housing industry’s concerns about TRID are looking like they were much ado about nothing.
But many that operate within the mortgage industry on a daily basis do not share that opinion.
In fact, many in the mortgage industry have about as diametrically opposed an opinion to Cordray’s view as humanly possible.
To get an understanding for just how far apart the CFPB’s opinion of TRID is from the industry itself, especially away from Wall Street, HousingWire conducted a series of interviews with community lenders about how TRID is impacting their business.
And the news isn’t good.
The lenders said that Cordray’s comparison of TRID to Y2K isn’t just off-base, it’s wildly disappointing.
“I read these articles and I’m like, what the heck? Where are these people coming from? I just don’t understand it. Because we’re going through so much turmoil and everybody I talk to has the exact same turmoil,” Kelly Welch of Equity Resources in Newark, Ohio, told HousingWire recently.
“People are all having the same issues,” Welch said. “We’re all just in a big boat trying to get to the end result, which is closing the loan, and it is very difficult right now.”
Welch, who is an executive vice president at Equity Resources, told HousingWire that the impact of TRID is far worse than anyone thought – and far worse than anything that has happened to the mortgage business in her more than two decades in the industry.
“It’s just very deflating to us,” Welch said of Cordray’s Y2K comparison.
“The reality of the situation is that I’ve been in this industry for 23 years and this is the biggest thing that’s happened to us,” Welch continued. “This is most time-consuming, biggest event that I’ve ever had to deal with in my 23 years. And that includes the market crash.”
Welch wasn’t the only one “deflated” by Corday’s Y2K speech.
Brad Livingston, the founder and president of Residential Wholesale Mortgage in San Diego, California, told HousingWire that his reaction to Corday’s Y2K speech was similar to Welch’s.
“It deflated us, because we’re all working so hard,” Livingston said. “And I think honestly that they just spoke prematurely. A month ago we weren’t even into the loan estimate stage. It’s been a heroic effort by our entire team and for them to read that it is no big deal is frustrating and demoralizing.”
Michael Bailey, senior vice president of mortgages and chief administrative officer of Yadkin Bank in Raleigh, North Carolina, said the Y2K comparison is “just bizarre in my mind.”
Bailey said that TRID is a “sweeping change” for the mortgage industry that required widespread reconfigurations of their entire system.
And despite those reconfigurations, which took immense effort to complete, Bailey said that the loan process is more complicated than it was before TRID – the exact opposite of the rule’s desired outcome.
“We’ve seen a significant drop in productivity,” Bailey said. “It’s taking twice as long to do everything. The net effect of that isn’t just an internal thing for lenders. It’s actually delaying closings and causing cancellations in some cases for consumers.”
Bailey said that his team is “nit-picking” every single document to make sure there are no minor errors that could “come back to haunt us in the future from a regulator or some sort of lawsuit.”
Operating with that level of fear is common among the three lenders that HousingWire spoke to.
“We’ve had huge anxiety at our company over doing it right. We want to do it right,” Welch said.
“At the end of the day, the goal is that we want the consumer to benefit from the new disclosures,” Welch said.
“The reality is that the new disclosures look great. But we need more help to reduce the anxiety we have over future litigation, and audits, so that we can do the best we can with the consumer,” Welch said.
“We don’t want to hold up closings to get that last little detail on the closing disclosure,” Welch said. “We really do want to close that loan just as much as everybody else does. We just need some help right now.”
All three lenders HousingWire spoke to identified a number of outstanding issues related to TRID that they need help on either from the CFPB or from legislators, in terms of a formalized grace period for the enforcement of TRID.
“Four to six months of regulatory and/or legislative relief is reasonable,” Livingston said.
“It’s going to take time to work through the technology glitches. Some of these issues are just coming to light now,” he continued.
“And to be honest, I’m not sure the CFPB even understands these issues. And it’s going to take time for them to offer some clarification,” Livingston said. “It’s really easy to draft regulatory rules and procedures but it’s the day-to-day reality, what does that really look like?”
And dealing with the immense compliance burden that TRID places on them is keeping the lenders from doing what they want to do, which is helping people buy homes.
“Having some reprieve for a certain period of time until some of these issues are sorted out would allow us to focus more on serving the consumer than we can right now, because we’re having to spend so much time going through these documents with a fine-tooth comb,” Bailey said. “That’s dragging us down.”
Livingston said that the customer is being overwhelmed by the amount of paperwork they receive, because lenders don’t want to run the risk of one tiny slip-up being the thing that invites a CFPB fine.
“We’re doing informational Loan Estimates after informational Loan Estimates,” Livingston said. “The consumer is just numb.”
But despite lenders’ best efforts, mistakes are still happening, and that has them scared.
Click the "2" or "Next" tab below for more on how TRID is really impacting the housing industry.
Recently, some empirical evidence has begun to surface showing just how far the mortgage industry has to come when it comes to complying with TRID.
A recent report from Moody’s Investors Service found that TRID compliance violations are potentially extensive throughout the mortgage industry.
In a new report on the impact of TRID on residential mortgage-backed securities, Moody’s analysts write that several third-party firms have reviewed a number of recent mortgage loans for TRID compliance and found violations in more than 90% of the loans.
The CFPB, for its part, is not commenting on the recent reports of TRID-related issues.
When asked by HousingWire about the Moody’s report of the potentially widespread TRID compliance issues, a spokesperson for the CFPB said that the bureau did not have a comment, choosing to let Corday’s words speak for themselves.
The CFPB spokesperson instead directed HousingWire to another Cordray speech, one given in October at the Mortgage Bankers Associations’ 102nd Annual Convention and Expo.
While speaking on the CFPB’s impact on the industry and its relationship with the mortgage banking industry, Cordray said that the CFPB laid some of the blame on TRID-related issues on vendors.
Cordray said that the CFPB had received reports that some vendors were not ready for TRID, a fact that had the Bureau concerned.
“It has become apparent that the implementation process was not as smooth as we would have hoped,” Cordray said of the implementation of TRID.
“Quite frankly, I have been disturbed by reports I have been hearing about the vendors on whom so many of you rely,” Cordray told the crowd in San Diego. “Some vendors performed poorly in getting their work done in a timely manner, and they unfairly put many of you on the spot with changes at the last minute or even past the due date.”
But Cordray’s recent speech on TRID, which compared the impact of TRID to Y2K, rankled many in the industry, including the lenders HousingWire spoke with.
“The TRID burden has taken us away from us doing our core business of financing home ownership,” Livingston said.
“We are a community mortgage banker that is spending way too much time and money on compliance and regulatory procedures and regulations,” he continued.
“We should be talking about how we create a dynamic housing market offering homeownership workshops, building awareness in diversified communities, and offering new products and programs for the next generation of homeowners,” Livingston said, adding that he’s had many “sleepless nights” because of TRID.
The lenders each spoke of increased costs and decreases in productivity – all of which adds up to a worse loan experience for the consumer.
“The unintended consequences that surround some of the regulations are trying to figure out and interpret things that are in gray areas where we don’t have any feedback from the CFPB,” Bailey said.
“We’ve had a situation where the client was at the table, ready to sign, and the settlement agent called us and said we can’t close this loan the way your closing instructions say, because we cannot get our software to align with your requirements,” Bailey said. “And we’ll literally have to stop and consult our counsel and potentially even cancel that closing because we don’t have enough guidance or enough experience to deal with certain situations. And those are real issues that are going on in the marketplace right now.”
And it’s not just potential delays to closings that are impacting customers; increased lender costs necessitated by the compliance burden could be passed on to borrowers.
“What consumers are seeing is increased pricing to cover the costs associated with the additional staff,” Welch said. “We’ve had to hire three more full-time people to just handle closing disclosures. Borrowers are now required to lock for longer terms to account for the time that mortgage companies and title companies need to make sure everything is perfect.”
Livingston said that his company has also had to increase staff, which in turn, has increased costs.
“Everyone in the industry is taking a very conservative and insulated posture on this, surrounded by legal teams and compliance departments. And yes that is adding cost to the consumer,” Livingston said.
“Our margins have gone up to cover increased costs and our pipeline has slowed by not offering some of the most competitive pricing that we would have offered otherwise,” he added.
Welch said that the implementation of TRID and its aftermath has caused her company to stop all new product development, because she’s spent more than 80% of her time in the last year on TRID.
“I know Fannie Mae has come out with a lot of great new programs this year, but we haven’t implemented any of them,” Welch said.
“We don’t have the time or the resources to do that right now,” she continued. “And those programs are good for consumers. We just don’t have the time right now to do any of that.”
And while an effort to establish a formalized grace period, in the form of the Homebuyers Assistance Act, H.R. 3192, which would establish a four-month TRID enforcement grace period, languishes in Congress, the lenders are stuck trying to survive in limbo.
“There needs to be some legislative and regulatory relief, especially if we’re demonstrating good faith that we’re doing a good job,” Livingston said.
“Bankers, vendors, investors and regulatory bodies need more time to get these rules right,” he continued. “It’s a complex process and we all are committed to ultimately improving the loan process.”
More than just a formalized grace period, Welch said they need the CFPB to provide them with more information quickly.
“A comment that everyone is going to be lenient means nothing to us because we still have to take a very conservative approach to protect our companies,” Welch said.
“We really do. And we need some sort of something to give us some clarity that we’re not going to get fined because we have a negative sign in front of one number that should be a positive,” she continued.
“I would say at least four to six months,” Welch said of a grace period.
“But beyond that, in this grace period, we need some direction from the CFPB on some of the issues that we still don’t understand,” Welch said.
“If we have a grace period with no clarification from the CFPB, that’s not that helpful,” Welch said. “Why can’t we get some clarity from them on some of these big issues during this grace period? Are they ever going to give us clarity? I don’t know. But we need that grace period and we need the clarity to help us.”
Until then, the lenders are left treading water.
And they don’t know if the CFPB is about to throw them a lifeline or drop an anchor on their head.