For time immemorial, mortgage lenders have been required to adhere to (1) The Truth in Lending Act (TILA) and (2) The Real Estate Settlement Procedures Act (RESPA). These two policies were designed to protect consumers by disclosing to them the cost a mortgage loan, and the cost of closing a loan transaction respectively. Both TILA and RESPA have long been enforced by numerous federal agencies including the Federal Reserve Board, the Federal Trade Commission, The Federal Deposit Insurance Supervision, and The National Credit Union Administration, to name a few. These acts have typically relied on consumers filling out multiple documents, many of which gather coinciding information - The Truth in Lending disclosure, the HUD-1 Settlement Statement, and the Good Faith Estimate, for example.
The TRID Rule
In 2010, The Dodd Frank Wall Street Reform and Consumer Protection Act (the Dodd Frank Act) established the Consumer Financial Protection Bureau (CFPB), and reinforced the consumer protecting functions of the aforementioned federal agencies. This process transferred rulemaking authority to the CFPB and amended sections of RESPA and TILA. These integrations were designed to streamline the lending process, ensuring that all disclosures are easy to read and understand, in terms of costs, benefits, and risks.
On October 3rd 2015, the industry saw another shake up in the shape of TRID (TILA-RESPA integrated disclosure), a final ruling which completely replaced the entire mortgage disclosure structure, changing the form, timings, and content of disclosures. TRID applies to the majority of closed-end consumer mortgages, and has brought about The Loan Estimate (H-24) form, and The Closing Disclosure (H-25 form), replacing The Good Faith Estimate and the early TILA disclosure form, The HUD-1 Settlement Statement, and the final TILA disclosure form.
These new forms are non-negotiable and information disclosed must be presented in a detailed and precise format. TRID ruling specifies that a mortgage broker must personally hand over a Loan Estimate within just three working days of receiving a loan application from their consumer and fewer than seven business days before consummation of the transaction. In similar vein, a settlement agent is also required to personally deliver a Closing Disclosure to the consumer no later than three business days before the consummation of the loan transaction. In a recent survey of lenders, the Stratmor Group found that there has been a significant boost in customer satisfaction since the implementation of TRID. However, this comes at a cost. Lending origination costs have increased on average by around $210 per loan, due to the implementation of back office fulfilment and post-closing duties. It is estimated that only around 17 percent of these costs can be recovered by additional charges.
The survey comes following The Mortgage Bankers Association's Quarterly Mortgage Bankers Performance Report, which recently reported a $493 net gain in the fourth quarter, down from $1,238 per loan in the third quarter. MBA Vice President of Industry Analysis Marina Walsh said the fourth quarter marked the second-highest level of production expenses per loan since the report's inception back in 2008.
The Stratmor survey reports that TRID implementation appears to be largely complete throughout the industry, with the vast majority (87 percent) of respondents stating they have either fully or mostly accomplished their goals; only 1 percent said their efforts were "way behind” schedule. Independent lenders are generally ahead of banks, with TRID implementation fully accomplished at 72 percent of small and 80 percent of mid-sized independents, compared to just 33 and 44 percent respectively for small and mid-sized banks. Despite these increased costs, Matthew Lind of Stratmor highlights that TRID is clearly associated with a significant improvement in consumer satisfaction, regardless of the somewhat slower application-to-closing times. "At the end of the day, improving the borrower's experience is a main objective of TRID, and in an increasingly competitive origination market, it is also a primary goal of lenders as well," he explained.
The Stratmor survey shows a significant increase (from 85 to 91 percent) in the proportion of borrowers being contacted by their lender prior to closing the loan. Improving communication was a primary goal of TRID. As a result, overall borrower satisfaction with the origination process is at a record high of 91 percent.
The future of TRID
Lenders have invested considerable time and money into technology, human resource, and revamped processes in order to prepare for, and implement TRID rules. It is therefore good news for the industry that TRID is having an increasingly positive impact on consumer experience. TRID currently manifests itself as a one size fits all regulation. Adapting to meet its requirements has clearly put a strain on lending industry participants. With time, the CFPB may offer additional guidance to lenders to help streamline the loan processes.