Credit ratings agency, Fitch Ratings, reports that mortgage market disruption attributed to the TILA-RESPA Integrated Disclosure Rule is likely isolated to the primary markets, so mortgage bond investors may not face similar volatility in their space.
Despite the many changes TRID caused, these mortgage errors are disproportionately high to the amount of actual risk they pose for residential mortgage backed securities investors, according to Fitch.
Indeed, the CRA states that investors will likely be exposed only to maximum statutory damages of $4,000 plus legal fees, consumer claims in defense of foreclosure may occur in judicial states as the consumer will be working with an attorney. Defensive claims in non-judicial states or affirmative claims in any state are less likely.
A recent, draft proposal provided by the Structured Finance Industry Group focused on the treatment of TRID errors in RMBS pools.
The ideas stem from "several months of collaborative discussions between third party review firms, attorneys, issuers and rating agencies," Fitch said in a release.
It signifies to investors that there will be a standard treatment of errors related to the new residential mortgage disclosure requirements. Most of the TRID issues are good faith errors, anyway, Fitch stated.
"However the ambiguity in the [TRID] rule and a lack of judicial precedent caused uncertainty on how to assess the materiality of the errors, as well as how to resolve them," Fitch stated.
The proposal still awaits its review by the SFIC membership and will be finalized over the next few weeks.