TILA-RESPA Changes Bedeviling Primary and Secondary Markets

It is the holidays, and I receive my fair share of automatic e-mail responses. Some are actually apologetic about taking a day off, or even leaving work for the day. And every once in a while someone breaks out of the mold. (Part 4 of 5 where I took the time to some of the more interesting ones.)

 Thank you for your email message. I will be out of the office attending Compliance School today, learning how to comply. I will respond to your message on Monday.

 I will be out of the office on Friday attending the birth of my child. My responses may be delayed. Thank you.

 I will be out of the office and away from technology from Thursday evening through next Monday. Except on occasion I will be unable to return email messages left here until next Monday. I believe you will be really pleased with the service you receive from my team during my absence - in fact they may even do a better job than me!

 

Remember when it was called RESPA-TILA? And it was swept up into the "Know Before You Owe" initiative - a well-intentioned move by the CFPB. And then TILA-RESPA so we could call it "TRID"? And then when the CFPB delayed it for two months because most lenders & vendors said they weren't ready, and even the ones that claimed they were ready really weren't? We are two and a half months into it and the CFPB is finding out that it is tough to change a process that was developed over decades of lending. And the letters continue to appear in my e-mail.

"I see in your commentaries lots of feedback about TRID. Something else is happening and it appears, absent some quick changes in philosophy, the effect could be both a complete seizure of non-agency lending and possibly some firm's very existence could be put in jeopardy. My firm has had 100% of the jumbo loans that we've sent for delivery rejected by our buyers. Yes - 100% - and we're talking nearly 50 loans so far. Why?  Every one had a TRID violation. Does that mean my firm screwed up and is alone on this? No. Two of the firms we sell to say they have purchased ZERO loans so far in December. ZERO. Why?  Same reason.  None of them were TRID compliant. The TRID rule is so severe, and so open for interpretation, and because the buyers are taking a zero defect approach - it is near impossible to manufacture a perfect loan from a TRID perspective. It's clear to anyone in our business what could happen next. If I were a warehouse lender - I'd immediately cease funding non-agency loans. Same goes for any correspondent lender who doesn't want a giant pipeline of unsaleable production. We're large enough to be able to fund our unsaleable pipeline with cash. But many firms are not. What happens to a firm that has $5 million of cash on hand when its warehouse lender asks them to buy $6 million of jumbos (literally only 5 to 8 loans) off of the line?  Game, set, match. Because TRID only affected new applications after 10/3 - the fundings are now only starting to be affected. This crisis is about to get real..."

 And this: "Many states require GFEs to be given to borrowers. Technically nothing has changed that but I do not see anyone sending out both the LE and the GFE. Lenders' problems aside what I do hear is from title and escrow. It is a total nightmare. Escrow has rigid rules to follow. They also have State laws to follow, since title companies are regulated by State Insurance Division. With TRID the lenders all have different interpretations of the rules, and want different things. They have spent millions on new operating systems. The end result will be most small companies will close."

 A broker wrote saying, "TRID has become a nightmare. Companies are spending so much time on TRID there is little to underwrite. Add 3-5 days to register a loan and at times 6-12 to close one. I just had one they took 3.5 days to send out the CD, now we have to wait 3 days to close. Oops! The CD was wrong - they forgot they were paying for the 15 day rate lock, because it took so long, and they were charging it to the borrower. New CD. I'm 0-4 this week on TRID."

 And this: The bureaucrats and regulators have no clue. The CD must go out and must be signed before client can sign loan docs. The CD is worthless, just like the LE: 3-4 page wordy docs are useless. With the LE, we provide a copy of the worksheet that shows a line item breakdown of the fees/charges and credits. With the CD we provide a copy of the escrow borrower settlement statement, which is a line item breakdown of the fees/charges and credits. We must provide additional info to be sure we understand what is what and that the client understands what is what. Regulators don't even know the additional info sheets exist and are provided to the consumer. UGH!!!!"

 And, "First, do a FHA Purchase LE for let's say a $200k purchase with 3.5% down. Go to page 2. On the left note the MIP. In the lower right bottom is the closing numbers. Look at the "Downpayment". It should be $7,000. It's not. It is '$7,000-Up Front MIP.' I have attorneys asking me what's going on - their borrowers are confused. The bureaucrats didn't understand FHA loans. To sum up TRID look at a statement by the Director (below to NRP) and then have a bureaucrat explain how TRID prevents a closing issue. TRID is costing the masses massive amounts to protect those that do not want to be educated. In regards to Cordray's statement how did the rate go up if they signed a rate lock agreement? Wouldn't TRID have cost less if the loan had to be locked 7 days prior to closing and a form signed by the borrower? Could this have been resolved by CFPB in a much simpler and more effective manner that the fiasco we are all enduring? Will business continue? Yes. Is it costing more in time and money? Most certainly. Will it get better? No it will just become the norm." (CORDRAY: "People would get to the closing table. They may feel they're a little bit over a barrel, and suddenly the interest rate has gone up some amount or it's changed from a fixed-rate mortgage that they thought they were getting to an adjustable-rate mortgage. There were a lot of unfair surprises at the closing table, and this change and this rule is meant to protect consumers against that.")

 And yet there is some optimism and successes. For example, Allen Beydoun wired over, "I think we can all agree that the client should know before they owe. I also think that technology and TRID go hand and hand. Lenders that invested a great deal of time and money into have their systems have the upper hand with TRID right now. Closings are still happening in 15, 20 days or less. Originators can still use this as an advantage when soliciting new business from Real Estate Agents. Brokers that are using lenders that invested a great deal of time and money into updating their systems have not skipped a beat. I see these success stories every single day."

And Paul Walnick, President of Fairway Independent Mortgage, writes, "Rob, we realized early in 2015 that the "Know Before You Owe" initiative was going to require a tremendous amount of preparation. Fairway dedicated the resources to fully understand the rule and the impact on the players in order to implement a process and design a training program unique to each role. The goal is to meet the expected signing date; we created a responsibility driven workflow including early preparation of the Closing Disclosure to do so. We involved the sales team from the beginning to keep a 'street' perspective; we work closely with our settlement agent partners and are able to call an audible when necessary. This educational process is validated by customer experiences insulated from this major regulatory change."

 Stearns Lending sent out, "With the implementation of TRID in full swing, Stearns is working toward a complete transition of our workflow and processes to support the new TRID requirements. To facilitate this final move, Stearns will no longer accept Pre-TRID transactions after December 31. Any applications taken prior to 10/3 must be submitted prior to year-end. Beginning January 1 only TRID-compliant applications taken on or after 10/3/15 will be accepted."

 Citi's correspondent clients received a Best Practices bulletin. "To assist you with the Truth in Lending Act/Real Estate Settlement Procedures Act Integrated Disclosure Rule (TRID Rule), we compiled some Best Practices.  These have been compiled from both previous communications and recently submitted files. While all Loan disclosures and related documents, processes and practices must be completed and performed per TRID Rule requirements, the Best Practices attached highlights some key practices and disclosure requirements related to the TRID Rule. If you have any questions regarding Citi's implementation of the Rule, and, importantly, if your legal/compliance advisors have Rule interpretations or recommendations that are different from Citi's, please do not hesitate to contact your Account Executive or the National Client Services Team at 800-967-2205."

 And of course if TRID is slowing down fundings, this causes rate lock extensions, and investors that counted on receiving loans aren't. The entire process slows - and that can't possibly help the borrower.

 Switching gears to something "simple" like capital markets, as entirely expected Janet Yellen and the rest of the Federal Open Market Committee, in a unanimous decision, voted to increase the fed funds rate to a range of 25 to 50 basis points, launching a new monetary tightening cycle. Future rate hikes remain data dependent, of course. Most expect the FOMC to keep the fed funds rate steady at the upcoming January 26/27 meeting, and then lift again at their March 15/16 meeting. The policy statement also says that the Fed will maintain its existing policy of reinvesting maturing assets until normalization of the level of the fed funds rate is well underway. This implies that reinvestment policy is also data dependent and that the FOMC is in no hurry to change the current policy.

 And thus the Federal Funds target range is now 25bp to 50bp, the Prime Rate was raised 25bp to 3.50%, and the Discount Rate was raised 25bp to 1.00%. As expected there was little reaction, and the U.S. 10-year ended at 2.29% - where it has closed many times this year. It is, however, the first time since June of 2006 that the Fed raised rates.

 Today for mouth-watering news we've seen Initial Jobless Claims (271k, -11k; ), the Q3 Current Account Balance (124.1 billion - I have no idea why this is important), the December Philadelphia Fed (-5.9, worse than expected); later is November's Leading Indicators (10:00 EST). We closed at 2.29% and this morning the 10-year is at 2.24% with agency MBS prices better .250-.375 versus the close Wednesday.