Friday, September 4, 2015

The Price of Messing up on TRID




Back to school? The U.S. Census Bureau has come to the rescue with a lot of forgettable numbers - but those actuary and statistics majors have to do something, right? There are about 78 million children and adults enrolled in school throughout the country ranging from nursery school to college and comprised of 26% of the population age 3 and older. A quarter of elementary through high school students had at least one foreign-born parent in October 2013. About 74% of college graduates with a degree in science, technology, engineering or math (STEM) were not employed in STEM occupations. And underwriters could probably tell you that the average earnings for full-time workers with a bachelor's degree were $83k in 2012, compared to $41,248 for full time workers with a high school diploma.

Unlike the free magazine above, mistakes cost money. ComplianceEase recently released an analysis of compliance defects for closed loans and found that the cost of correcting errors is pushing the cost of origination up by $28 per loan. Their research also indicated that 17 percent of the 700,000 loans analyzed failed for TILA reasons and 6 percent failed for being outside of RESPA tolerances. For the 6 percent of loans that failed the RESPA tolerance test, the average cost for reimbursement was $328 and for 2 percent of loans that had an uncured RESPA violation the average reimbursement cost was $740. With the upcoming TRID regulations, lenders will have to be more cautious as penalties will range from $5,000 per day to $1 million per day for "knowing violations." Also one year after the effective date of the QM rule, Compliance Ease's research showed that 4.5 percent of QM loans failed Safe Harbor tests and 11 percent were mis-categorized as to their QM status.

With about 20 business days left until the TRID hammer comes down on the industry, I have received several questions about penalties if something goes wrong. Brennan Holland with Lenders Compliance Group writes, "The penalties for closing even a single loan in violation of the TILA-RESPA Integrated Disclosure (TRID) regulations can far outweigh any costs incurred in ensuring compliance with the new requirements.... For any violation of a law, rule, or final order or condition imposed in writing by the Bureau, a civil penalty may not exceed $5,000 for each day during which such violation or failure to pay continues.... For any person that recklessly engages in a violation of a Federal consumer financial law, a civil penalty may not exceed $25,000 for each day during which such violation continues... For any person that knowingly violates a Federal consumer financial law, a civil penalty may not exceed $1,000,000 for each day during which such violation continues..."

The Mortgage Action Alliance issued a Call to Action, urging its members to contact their members of Congress in support of legislation that would provide a temporary enforcement grace period and legal safe harbor to ensure smooth implementation of the new TILA-RESPA Integrated Disclosures rules for lenders that make a good-faith effort to comply.  

In the House, H.R. 3192, the Homebuyers Assistance Act, introduced by Rep. French Hill, R-Ark., would provide a legal safe harbor for lenders through February 1, 2016. The bill was approved by the House Financial Services Committee in late July.  In the Senate, S. 1711, introduced by Sen. Tim Scott, R-S.C., would provide a similar legal safe harbor through January 1, 2016. The bill was included in the regulatory relief package that was reported from the Senate Banking Committee earlier this year.

In these waning days of summer vacations the number of announced bank mergers have died down. In the last week there was only a handful. Northfield Bank ($3.1B, NY) will acquire Hopewell Valley Community Bank ($485mm, NJ) for $54.9mm in cash (25%) and stock (75%) or about 1.47x tangible book. In Alabama Avadian Credit Union ($607mm) will acquire American Bank of Huntsville ($127mm). And up north in Illinois Union Federal Savings and Loan Assn ($108mm) will acquire First Federal Savings and Loan Assn of Kewanee ($64mm).

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