With less than four months to go before a new integrated disclosures rule takes effect — and fundamentally transforms the mortgage transaction as we know it today — are your mortgage partners ready to comply? The answer may surprise you.
If the Aug. 1 deadline for the Consumer Financial Protection Bureau’s TILA-RESPA Integrated Disclosures rule, or TRID, happened tomorrow, only 12 percent of mortgage lenders would be prepared to comply with the new rule, according to a recent survey — but even those that say they are prepared may be overspending on compliance efforts in an unsustainable way.
Only a few of the lenders that attended the Mortgage Bankers Association’s (MBA) National Technology in Mortgage Banking Conference and Expo 2015 last month and responded to the survey said they are “very prepared” to meet TRID’s requirements. The survey, conducted by Capsilon Corp., polled more than 100 executives from leading mortgage lenders.
According to the survey, 41 percent of mortgage lenders said they are “not prepared” to comply with the new regulations — despite the fact that mortgage, financial services, settlement service and other affected industries have had since November 2013, when the CFPB released the final rule, to get their houses in order and prepare to use the new consumer disclosure forms, deploy and test the software changes needed to handle the forms and work with their partners to adjust the closing process accordingly.
These results are even more concerning in light of the CFPB’s requirement that lenders assume responsibility for making sure everyone involved in closings complies with the bureau’s complex, 1,888-page rule and accompanying regulations. Since the rule was rolled out, the bulk of the educational and training efforts have been led by the title insurance industry, primarily by the American Land Title Association (ALTA), which in the first quarter of this year partnered with MBA and the National Association of Realtors on several regional TRID forums on cross-industry training and to promote collaboration between the various affected industries.
One of the major hiccups in the preparation efforts seems to be the challenges posed by the need to hire additional compliance staff and either purchase new loan origination and closing software or upgrade existing platforms. According to the survey, 67 percent of the respondents have hired additional labor to handle compliance-related tasks, which has contributed to soaring loan production costs. Four out of 5 of the respondents also said they believe their companies’ loan production costs will continue to rise in 2015 versus 2014 as they increase focus on compliance-related activities, with 20 percent forecasting that their loan production costs will be “significantly” higher this year.
Those numbers are in line with recent MBA data that reported total loan production expenses increased to $7,000 per loan in the fourth quarter of 2014, up from $6,769 per loan reported in the third quarter. The $7,000 figure also represents an 18 percent increase in total loan production expenses over 2013, and an even more startling 36 percent increase over the same expenses reported in 2012 — an unsustainable model, said Capsilon CEO Sanjeev Malaney.
“The survey results clearly indicate that many lenders don’t have the right technology in place to handle the requirements of TILA-RESPA, and are scrambling by hiring more labor to help close the gap, which only drives loan production costs higher,” Malaney said. “Lenders should be embracing technology to automate compliance and tolerance checks, not hiring more people.”
Many in the industry, including ALTA, are pushing for a lenient, “hold harmless” enforcement period from the CFPB as it monitors for compliance in the first few months following implementation. Some are even lobbying Congress for a delay in the Aug. 1 deadline, but so far, the CFPB has maintained that it has no plans to consider those requests.
“If you are not yet ready, I strongly suggest you get moving,” said Michael Vitali, chief compliance officer at LoanLogics, which monitors regulatory developments and their practical implications for lenders, servicers and vendors, on his company’s blog. “Don’t bank on an extension. Although history may have shown that in these cases extensions do get granted, such history is not based on the actions of the CFPB. It is not prudent to wait. If you believe it is, maybe you should head for Vegas or [Atlantic City] and put it all on black (or red; your call). Odds of the extension are about the same, maybe a little better at the casino.”
The CFPB’s website contains a TRID compliance resource repository, including guides to and samples of the new forms, links to webinars and special tools for small companies, at http://www.consumerfinance.gov/regulatory-implementation/tila-respa/.
