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Mere months remain before the implementation of the TILA-RESPA Integrated Disclosure (TRID). As lenders work to revamp processes and policies, and technology providers wrap up upgrades to their systems, the extent of the operational impacts remain unclear. We do know they will be extensive, potentially costly and absolutely necessary. The Consumer Financial Protection Bureau (CFPB) has made it clear that institutions will be expected to comply with the new rules on the Aug. 1, 2015 effective date.
It was the CFPB that was required under the Dodd-Frank Act to combine the Truth-in-Lending Act (TILA) and Real Estate Settlement Procedures Act (RESPA) disclosures. The new Loan Estimate form replaces the early Truth-in-Lending (TIL) disclosure and the Good Faith Estimate (GFE). The new Closing Disclosure Form replaces the HUD-1 Settlement Statement and the final TIL disclosure. The CFPB says that combining several forms into the two new ones will reduce both paperwork and confusion. Predictably, the mortgage industry is braced for plenty of both.
“Many in the industry agree that these new rules are going to have a much greater impact on lenders’ operations compared to the CFPB’s ability-to-repay/qualified mortgage rules that went into effect in January, particularly from an operations standpoint,” wrote MortgageOrb.com, a real estate finance industry news site. “What’s more, they are going to be many times more costly and time-consuming to implement, as they will require significant technology upgrades and staff training.”
What should loan originators and closing departments do to prepare for “Know Before You Owe?” Plenty, based on our experience and CFPB guidance. To simplify a topic that seems to defy simplification, we offer these five steps as we prepare for Aug. 1.
1. Assess the impact of the changes on your operation
The natural starting point for an evaluation of how the new rules will affect your business is to list the services you offer and determine which of the regulatory amendments applies to each one. The CFPB has made available a range of guides, bulletins and updates; and they continue to be published as rules are amended. It’s worth noting that there are exemptions to the rules, so check for those as well. With the complete information about impacts and exemptions in hand, it’s time to discuss both with compliance counsel.
Ultimately, this assessment will extend to loan populations, processes and procedures, controls, and staffs. Approaches will vary. What is clear is that some re-mapping of borrower information and loan data will be required to produce the new disclosure forms. Also to be dealt with are new content requirements such as the new estimates of total principal paid off in five years and the total interest paid over the term of the loan expressed as a percentage of the loan amount.
Remember that impacts will extend beyond your walls to vendors and other service providers. Technology integrations with third-party providers will need to be evaluated and updated. A key question to ask is whether those third-party providers will be ready by the deadline with compliant–and tested–application releases. If not, it may be time to consider other options.
2. Consider your compliance workflow
The new disclosure rules, which impact nearly every player in the home mortgage process, will demand fast, secure and complaint exchanges of information. The new rules on the closing disclosure, which will have to be in the hands of the borrower three days before the closing, are especially onerous. Lenders and closing agents will have to develop new systems to facilitate those exchanges.
Under the existing rules, negotiations between buyer and seller can continue right up until the closing, leading to last-minute changes. The new pre-delivery requirements will surely curtail those kinds of changes, so customer expectations will have to be managed.
Remember, the new rules cover not just timeliness but also accuracy. New process and operational controls may be required to ensure both. Additionally, preventive and defective controls may need updating to ensure the organization has the proper safeguards in place to meet the requirements.
3. Develop plans for implementation
Implementation planning should be based on a gap analysis that reveals what processes need to change as a result of the new rules. The plan developed based on that analysis should identify who will be responsible for its development, who will ensure adherence and who will monitor compliance going forward.
As with any planning process, this one should involve all the impacted stakeholders and gain the approval of senior management. Progress tracking and reporting should also be included, as well as testing procedures and reporting of results.
Again, plans need to be shared with third-party providers, who should be willing to provide versions of their own planning. If that can’t happen, contingencies should be considered.
4. Train staff
A major component of any implementation plan is staff training. In this particular case, loan originators are seeing a three-page form that they only recently learned how to explain be replaced by a new-five page form. They’ll need to know how to explain this new form to customers without having many opportunities to work with it beforehand.
Deciding who will need training and in what areas is the obvious first step. Also to be decided are exactly what information will be covered, whether the training will be instructor-led or online, and how it will be varied based on employees’ duties. Remember that training should include instruction in areas where company employees have responsibility for the actions of third-parties. Part of the process of course content development and approval should include a mechanism to determine the effectiveness of the training and making necessary modifications.
Given the complexities, it may make sense to consider purchasing training content from a vendor experienced in its design, implementation and evaluation.
5. Review your loan origination software
The last step in this process, a review of your organization’s loan origination software, should answer three key questions.
►Is it ready for TRID on Aug. 1? Be sure your loan origination software (LOS) not only produces the new disclosures but also provides the necessary data and documentation to evidence compliance. It is not enough to just produce the disclosures; you must be able to track re-disclosure and re-setting of tolerances and know when a lender credit will be needed in the event of a tolerance violation.
►Does it facilitate communication in operational relationships? Be sure your loan origination software allows you to communicate with third-party settlement service providers, particularly settlement agents. The flow of the closing process changes dramatically under the new rules–today, the settlement agent prepares the HUD-1 and gets the lender’s approval. With the new rule, the lender is responsible for the Closing Disclosure. And with the waiting periods, it is more important than ever to ensure data integrity and accurate fee disclosure to the consumer.
►Is it a workflow that matches your company? Your LOS should work with your processes, not in conflict with them. Having systems and processes work together seamlessly will help to ensure forward movement of your mortgage loan files, increasing efficiency and consumer satisfaction. Ensuring you have accurate fees from the initial Loan Estimate through to the Closing Disclosure is essential. Knowing when waiting periods expire and when disclosures have to be out to make a specific closing date is crucial. Having your system support you in all this gives you peace of mind, especially given the liability under the Truth in Lending Act.
Mentor your team, ensure compliance and stay in control … on Aug. 1 and beyond.
As chief technology officer and founder, Jorge Sauri is responsible for the development and direction of MortgageDashboard, a cloud-based end-to-end mortgage loan origination system built on a Software as a Service (SaaS) platform. He may be reached by e-mail at [email protected].
This article originally appeared in the May 2015 print edition of National Mortgage Professional Magazine.