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58 | Th e M Rep o RT O r i g i nat i O n s e r v i c i n g a na ly t i c s s e c O n da r y m a r k e t SECONDARY MARKET Department new trid rule Will increase risk of losses for rmBs Set for an early August rollout, the mandate is expected to have a significant effect on the compliance side of the real estate realm. m oody's Investors Service released a report called "New TILA-RESPA Rule Will Heighten Possibility of Losses in US RMBS for Rule Violations," revealing that initial challenges for lenders to imple- ment and comply with the new TILA-RESPA Integrated Disclo- sure (TRID) rule, along with the potential high costs of lenders that do not comply, raise the risk of losses for residential mortgage- backed security (RMBS) trusts. The TRID rule is set to go into effect August 1 and will dramati- cally affect the compliance side of the real estate market. The new rule will replace the current disclo- sure requirements of the Truth in Lending Act (TILA) and the Real Estate Settlement and Practices Act (RESPA) and will also broaden the amount of inaccurate information that secondary market purchas- ers, like RMBS trusts, will be held accountable for. As of now, RMBS trusts are only liable for finance charge errors from lenders, the APR, and certain other disclosures required by the TILA, but they are not liable for errors on itemized settlement charges and other disclosures required by the Real Estate Settlement and Practices Act (RESPA), the report says. TILA and RESPA currently require that lenders provide an initial and final disclosure to consumers, and an assignee's liability for errors depend on which law required the disclo- sure. TILA requires assignees to be liable for violations that are visible on the face of the disclosure state- ments, but RESPA does not. "The huge operational chal- lenge for the industry to imple- ment and comply with TRID will likely cause a spike in compliance errors," said Yehudah Forster, a Moody's VP and senior credit of- ficer and author of the report. "Just how much RMBS trusts will be liable for the errors of lenders will depend largely on the interpreta- tion of the courts." Loans that violate the new TRID rules with uncured errors will have an increased chance of legal costs and damages if they de- fault, the result of the expanded set of errors for which RMBS trusts could be held liable for, according to the Moody's report. After the rule goes into effect, companies will endure operational challenges in implementing TRID and will cause compliance errors to rise for at least the first few months. Moody's believes that as long as issuers perform due diligence on all loans, as they normally do in post-crisis private label RMBS transactions, securitizations will unlikely have loans with uncured compliance errors because issuers will remove these loans from the RMBS pools prior to closing. "The risk of higher losses will be slight for issuers that adhere to these more stringent procedures put in place in the wake of the financial crisis," Forster said. House Financial services committee discusses rural Housing service's Future The single-panel hearing briefed members on the RhS's budget, performance, and goals. t he U.S. House of Rep- resentatives Committee on Financial Services (FSC): Housing and Insurance Subcommittee held a hearing in mid-May called "The Future of Housing in America: Oversight of the Rural Housing Service," according to a memo- randum written by the FSC majority staff. The hearing was intended to provide members with the chance to receive infor- mation from the Rural Housing Service (RHS) on its budget priorities for fiscal year 2016, the agency's overall performance, and its future goals and challenges. This was a one-panel hearing with witnesses Tony Hernandez, RHS administrator, U.S. Department of Agriculture; and Mathew Scire, RHS director, financial markets and community investment, U.S. Government Accountability Office, the memo says. The RHS is a federal agency housed in the U.S. Department of Agriculture that is responsible for providing affordable housing for low- to moderate-income rural families. The agency was estab- lished by Title V of the Housing Act of 1949 (P.L.81-171). RHS is re- questing a total budget authority of $1.39 billion for its FY 2016 budget proposal that will support a pro- gram level of approximately $28.73 billion in loans, loan guarantees, grants, and technical assistance. "RHS programs are intended to facilitate homeownership, de- velop rental housing, and promote community development through loan and grant programs in rural communities plagued by pov- erty, substandard homes, housing shortages, costly development, and inadequate access to mortgage loans," the FSC staff wrote. A community must meet the statutory definition of "rural area" in order to qualify for the RHS programs. The most recent decennial Census data says that as of September 30, 2014, a commu- nity's populations must not exceed 35,000, the area must be rural in character, and the area must have a serious lack of mortgage credit for lower- and moderate-income families. If an area meets these requirements, it can continue to remain eligible until new decennial Census data emerges in 2020. Single-Family RHS Programs: • Housing Direct Loan Program • Housing Guaranteed Loans • Rural Housing Repair and Rehabilitation Loans • Rural Housing Repair and Rehabilitation Grants • Mutual Self-Help Housing Loans • Rural Housing Site Loans • Self-Help Technical Assistance Grant