The expert minds at FBR Capital Markets got together and thinktanked the coming implementation of the TILA-RESPA integration; also known as TRID.
In an email to clients this morning, the team of financial services and real estate analysts drew 5 key points about what many in the mortgage lending industry expect to be a total upheaval of their operations.
But are mortgage lenders right to be so worried?
Well, yes, but FBR says it won’t be nearly as bad as adopting the Qualified Mortgage rule.
“While these new rules aim to give greater clarity to borrowers, they come with increased compliance costs/legal liabilities for lenders and could increase the time/cost to close a loan,” the research note states. “In conversation with industry participants, the actual impact of these rules is a key debatable point, with consensus believing that the rules may have a temporary drag on origination volumes in the second half of 2015.”
So here are those 5 points from FBR, the words are theirs. Please debate at will on the message boards below.
1. There is no common opinion of TRID
"Some lenders believe the rules could weaken originations while others are less pessimistic. The varying views from industry make us believe it is likely that some lenders are unprepared for the rules to come into effect, particularly the smaller originators. We expect some to reignite the criticism that regulation is making some originators “too small to comply.” Additionally, we believe that originations will be negatively affected temporarily but not as significantly as last year’s QM rules. It is possible that the market will see an uptick in July and August as borrowers sprint to get loan applications filed before the end of July and the start of the new rules."
2. CFPB promises leniency; but with conditions
"CFPB Director Richard Cordray promised that the Bureau would “be sensitive to the progress made by those entities that have squarely focused on making good faith efforts to come into compliance with the rule in time.” However, it seems the letter did not go as far as many in industry wanted as there was no explicit guarantee that the Bureau would not bring enforcement actions for violations occurring despite good faith efforts. Despite leniency from the CFPB, lenders could still be legally liable for violations."
3. Lenders need in-depth overhaul
"Under the new regulations, lenders will need to overhaul their loan origination system and will be required to create two loan documents —one at application and one at closing. While the documents combine four forms lenders create currently, the new documents require more in-depth calculations. Lenders are held fairly closely to their estimated costs. Lenders will also be required to use the current system to process all loan applications filed before August 1 and the new system for all applications filed after August 1, further increasing costs as banks use two tracks for a number of weeks."
4.Closings could take longer; longer rate lock terms?
"CFPB’s rules are designed to prevent at the-closing-table changes to the terms, but borrowers could find themselves disappointed as closing dates slip and rate locks expire. The new rules require that the lender provide the closing document at least three days before closing. If the interest rate significantly changes, a pre-payment penalty is added; if the loan type changes, the closing document will need to be reissued and the closing must wait another three days. We believe that closing dates could slip and lenders will likely be forced to issue longer rate locks."
5. Big banks will absorb change better
"In our view, we believe that bigger banks are better positioned to weather the new rules compared to smaller banks, which lack the ability to absorb the costs of compliance. Many lenders ultimately believe the rules will be a long-term positive for the industry."
NOTE: The authors of the report are Thomas LeTrent, Jessica Levi-Ribner, Paul Miller, Edward Mills and Ian Swanberg.