The initial shockwave from TRID is over, replacing beginning fears and worries with solid evidence of what the new rule is doing to the mortgage industry.
While the rule was designed to help the industry, now nearly six months post-TRID and the CFPB is yet to address concerns, they say, which came to light since the rule went into effect.
The Association of Mortgage Investors wrote a letter to Consumer Financial Protection Bureau Director Richard Cordray to express the mortgage investor community’s concerns over the bureau’s “Know Before You Owe” mortgage disclosure rule.
The letters opens stating: (Check here for the full letter)
The recent evidence is that the rule, while extremely well-intentioned, has resulted in a climate of legal uncertainty and is chilling private investment in the U.S. mortgage market. We urge the bureau to open a new public comment period to address the concerns of mortgage investors. We seek formal written guidance clarifying the liability for a violation of each individual TRID requirement, as well as, the scope and applicability of TRID’s cure mechanisms.
The group behind the letter, AMI, represents investors in mortgage-backed securities, including university endowments and pension funds. The AMI was founded, in part, to play a primary role in the analysis, development, and implementation of mortgage and housing policy to help keep homeowners in their homes and provide a sound framework that promotes continued home purchasing.
“The lack of clarity from CFPB has led to originators being unable to sell what would otherwise be considered good loans in the secondary market. This has led to at least one large originator being forced to close its doors. Others will follow,” said Chris Katopis, AMI executive director.
“The CFPB telling mortgage investors and other secondary market participants they are overreacting and that they just need to buy is unfair to the market and clearly not working. The CFPB cannot just tell investors to ignore the risk that the CFPB is reserving the right to change their mind and judge them after the fact. If the minor, technical TRID violations that are freezing the secondary mortgage market are truly not an issue, then CFPB should have no issue putting out official, clarifying guidance,” said Katopis.
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.
The Mortgage Bankers Association wrote a similar letter toward the end of last year, asking the CFPB to clarify rules as well. However, the answered they received was less-than assuring.
The response letter from Cordray to the MBA said:
The bureau and the other regulators have made clear that our initial examination for compliance with the new rule will be sensitive to the progress industry has made. In particular, our examiners will be squarely focused on whether companies have made good faith efforts to come into compliance with the rule. All of the regulators have indicated that their examinations for compliance in the first few months of implementing the new rule will be corrective ad diagnostic, rather than punitive.
The MBA’s letter also touched on investor concerns. Here is the response it was given:
Accordingly, the bureau believes that if investors were to reject loans on the basis of formatting and other minor errors, as you indicate has been occurring, they would be rejecting loans for reasons unrelated to potential liability associated with the Know Before You Owe mortgage disclosures. Such decisions may be an overreaction to the initial implementation of the new rule, an our assessment is that these concerns will dissipate as the industry gain experience with closing, loan purchases and examinations.
However, as AMI noted in the letter, the errors are causing issues that need to be addressed more than saying investors are overreacting; in the meantime investors will remain conservative in their investment behavior, by some indications.
"It is not simply the probability of a lawsuit or potential legal costs – although those are certainly factors – there is reputational risk; increased transaction and operational costs; and, post-crisis, there is little corporate tolerance for any legal or regulatory risks," the trade group warns.
The AMI also states additional costs associated with TRID compliance will be passed on to borrowers.