Aug. 8: The increasing weight of compliance – can anyone possibly keep track of it all? Is it helping the consumer?

Years ago I loved playing Trivial Pursuit. (Supposedly 95% of its questions are still accurate 25 years later!) And although TRID is no game, Morf Media Inc., developer of compliance training platform Morf Learning, has recently launched a Trivia game that helps check understanding of the major changes outlined in the TILA-RESPA Integrated Disclosure rule issued by the Consumer Financial Protection Bureau (CFPB). Results of the daily TRID TRIVIA game show that 30 percent of its players (mortgage lenders, real estate agents and escrow) on average are guessing with the wrong answers. Non-compliance is costly, and who wants to risk their entire net worth on guessing?


The American Bankers Association reports that, “Growing regulatory compliance burdens have led nearly half of all banks to reduce their offerings of financial products and services, according to the ABA’s 2015 Survey of Bank Compliance Officers. A combined 46.3 percent of respondents said their bank had cut offerings for loan accounts, deposit accounts, or other services because of regulatory effects. Additionally, 46 percent of bank compliance officers reported their institution had decided not to launch a product, open a new channel, or had held off on entering a new market – temporarily or permanently – due to compliance concerns. ‘It’s clear that the compliance burden brought on by Dodd-Frank has had an impact not only on banks, but more importantly on the customers and communities they serve,’ said Frank Keating, ABA president and CEO. ‘This regulatory overcorrection has limited the loans, products and services available to consumers.’


“Further evidence of regulations’ effect on customers can be seen in the one-third (33.8 percent) of banks that turned down otherwise creditworthy mortgage borrowers in an effort to comply with the Ability-to-Repay Rule. The rule’s impact was felt most by banks with between $1 and $10 billion in assets. Approximately one-third (33.2 percent) of banks now make exclusively Qualified Mortgage loans. The survey also reviewed trends in banks’ risk assessment processes. More than 75 percent (76.6) of respondents perform enterprise-wide risk assessments, a majority of which are done annually. Results showed that as bank asset size increases, so does the percentage of institutions performing enterprise-wide risk assessments. In other findings, an increasing number of banks are relying on social media monitoring as a portion of their consumer complaint management process. Just over 50 percent (51.3) of respondents use social media or other internet sites as a way to review comments about their bank – an increase from the 42.2 percent that did so in 2013.”


Regarding the minutiae of timing, I received this note from Owen E.: “From what I understand, borrowers must receive the CD in person or via courier service 3 days prior to closing or consummation of the loan. However, email delivery is lumped into the category with USPS snail mail and is given an additional waiting period to deliver the CD to borrower and prove receipt 3 days prior to loan ‘consummation’. Any news or talk on whether DocuSign, or any other electronic delivery methods, will be allowed to prove borrower receipt, and not have to wait the additional days for snail mail delivery? If not, maybe we should start a courier service…”


First off, this really argues for things like e-Signatures. But you may find what you want in Comment #2 of section 1026.19(f)(1)(ii) Timing discusses the examples of delivery and uses the delivery of email and getting confirmation of receipt as meeting the requirements therefore foregoing the “mailbox rule” which is the three days.

David C. wrote, “It seems like the regulatory burden is escalating, and unfortunately once you’re hooked on it, you require more and more. At this point it sounds like lenders want the regulators to try to regulate turn times and who knows what else. In my opinion, that’s the whole problem with our industry: over-regulation. Too much regulation often resulting in unintended consequences, like qualified people not being able to get a loan, private lenders not lending due to fear of regulators, regulations simply prohibiting free commerce or things taking too long so deadlines don’t get met. The free market can work really well and as such my advice to the folks below is move to a company that cares about deadlines and has your back, don’t broker to the companies that can’t deliver. That’s what I did and I’ll do it again if my company starts losing sight of what’s important: customer service. That’s one thing I love about my current company: they care about the customer and will often move mountains to help me meet a contract deadline.”


“Rob, is anybody else struggling with the concept that re-disclosures should only include changes that are the result of a changed circumstance? What auditors don’t seem to understand is that a loan file almost has a life of its own, constantly morphing with new information added daily, like actual insurance quotes, title charges gathered, etc. When I go into the system, I can’t roll back the clock and create a new good faith estimate that only includes the changes that are a direct result of my change of circumstance.”


Along those lines, “Rob, are you hearing about a wave of re-disclosures coming our way?” Yes I am. I am no compliance expert, but many are talking about companies already going way overboard on re-disclosing. And no one blames them, given the misinformation, confusion, and terrible penalties for mistakes. As best I can tell a re-disclosure is required for three things: a loan product change, a prepayment penalty discover, and a change to the Annual Percentage Rate (APR). Everyone should keep in mind that the Agencies, as best I can tell, have never provided compliance or disclosure feedback or advice. They rely on the lenders adhering to current regulations, and existing reps & warrants.


There are all kinds of disclosures – not that any borrower actually reads them, and lenders are happy to add on in order to cover them from future buybacks or lawsuits. I received this question. Do you know anything about ‘anti-steering and safe harbor’? Are lenders still required to present three options?  I don’t know of any lender actually requiring their MLOs to do this – although companies like Vantage have a solution that does this – but when I see lenders buying it yet not using it, I get confused.” My understanding is that the Anti-Steering disclosure is required for transactions where a MLO is compensated by someone other than their employer or the consumer. This would include broker transactions where the lender is paying the mortgage broker compensation. Many banks don’t broker-out so do not use the Anti-Steering disclosure.”


In mid-July the Federal Home Loan Bank (FHLB) issued PFI Advisory 7-13-15 entitled: The MPF Program Reminds PFIs to be Prepared for the TILA-RESPA Integrated Disclosure Rule, Coming Soon.  “During your preparations, has your institution considered the following? Have you tested new processes, procedures, or systems? Have you trained your staff to comply with the Rule? Have you considered how you will use the new Your Home Loan Toolkit that is replacing the Settlement Cost Booklet? Have you contacted your vendors to ensure they will be ready to comply? Have you developed a strategy for coordinating and communicating with all parties involved in a mortgage loan transaction (i.e. the buyer, seller, loan officer, real estate agent, title company, and settlement agent)? Have you consulted with your legal counsel and/or compliance team? Have you developed an alternative plan of action if you or your vendors are not ready by the effective date of the Rule? Have you created a strategy to monitor your institution and your vendors’ continued compliance with the Rule even after the implementation date? NOTE: If your institution is out of compliance with applicable laws, including the Rule, the MPF Program will not purchase any loans from your institution while it remains out of compliance.   Additionally, any loans delivered under the MPF Program that do not comply with applicable laws are subject to repurchase.



And you can bet fees and the cost to consumers will change. For example, Brian Coester writes, “The implementation of TRID has become one of the most discussed and worrisome topics for mortgage lenders in recent memory.  Following exhaustive analysis and thorough surveying of lender clients, CoesterVMS will transition pricing from its nationwide flat fee schedule to state specific pricing.  Effective Monday, Aug. 17th, 2015, the TRID Flat State Fee Schedule in the link below will be applied to all accounts: CoesterVMS TRID Flat State Fee Schedule. This schedule, based on appraiser fee averages (including complex properties), will streamline the valuation process and allow for more consistent disclosures. In conjunction with this update, CoesterVMS will offer a Disclosure Calculator tool that allows lender clients to enter a property address and product to receive a price quote based on the most recent data in a specific market.”


Bill Kidwell of IMMAAG writes, “There is an issue that has surfaced regarding the CFPB’s unwillingness to clarify a sticking point about resetting tolerances using the Closing Disclosure. In the past 10 days, I have spent hours on the phone with prior and current CFPB legal staff trying to get an explanation of the position that if a Closing Disclosure is issued in the three days prior to consummation and then there is a valid borrower driven change of circumstances that moves the consummation to a future date beyond three days the lender may not use the CD to reset tolerances. Industry is being told that in this case fees such as lock extensions, which fall in the zero tolerance category, cannot be reset therefore the lenders would have to ‘eat’ them.


“I am told that the CFPB’s position is they want to wait and see what happens before the address such unintended consequences as this one. Sounds to me like a statement from a well-known US Congress woman about how to determine what’s really contained in a well-known healthcare law – to paraphrase: ‘We’ll just have to wait and see how turns out to know what’s in the bill.’ From what I gather speaking with some of the larger lenders, their attempt to resolve this issue that may only occur in a fraction of the transactions may be to offer and price for 45 day instead of 30 day locks. The Bureau seems unconcerned about what could result in a cost increase affecting all borrowers that is caused by a misinterpretation of intention in the rule and could be avoided with an open minded, clarifying response.


“IMMAAG users and subscribers seem universally convinced that TRID will confuse consumers, not simplify and use examples such as the fact that in the case of Lender Paid compensation, the MLO comp is not visible on the Loan Estimate and then when the Closing Disclosure is prepared the number is singled out as a Paid by Others. This will require an explanation that most borrowers are likely to consider ‘smoke and mirrors’.


“A second observation is, the CFPB decided to disclose the interest rate credit separate from the loan costs. The credit is reflected in Box J on the Loan Estimate and on the Closing Estimate. Their replacement booklet, Your Loan Tool Kit instructs borrowers to compare total loan costs using Box D on the disclosures. This will hide the difference in cost of two loans with identical interest rates but different rebates. In an April meeting in D.C. with senior CFPB mortgage staff the response seemed to be one of surprise, followed by a comment that nothing will change. They want to wait and see how things go. It is totally unclear to everyone with whom I speak as to why the Bureau seems so resistant to both acknowledging problems and clarifying corrections before the new forms are implemented.


I continue to receive comments regarding title issues resulting from the disclosures and the rule’s mishandling of owner versus lender title policy costs; concerns about how lenders will deal with Loan Estimates that had to be issued by mortgage originators because the broker had the six elements, but had not yet identified a lender so issued the LE without a lender name; LOS system concerns about the lack of clarity in the rule and there is a lot of concern expressed regarding the fact that the rule makes borrower signature on the Closing Disclosure optional and even when signed provides no borrower commitment to the loan. It appears the CFPB solution is to have industry provide one or more additional “settlement” statements or to have the lenders individually determine whether signatures are optional or not. Neither approach provides the standardization that simplifies for borrowers. Last, but certainly not least; Brokers are very worried, and I suspect rightfully so, that their major operational problem will be complying not so much with the rule, but with the dozen or so different interpretations each of their funding lenders incorporate. In some perverse way, TRID interpretation and implementation at the lender level will join rates, turn times and operational considerations as marketing statements.”



[Editor’s note: and remind me… how is a confused industry supposed to help the consumer?]


A woman was telling her friend, “It is I who made my husband a millionaire.” “And what was he before you married him?” asked the friend. The woman replied, “A billionaire.”




(Copyright 2015 Chrisman LLC. All rights reserved. Occasional paid job listings do appear. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of Rob Chrisman.)

Rob Chrisman