January 2016 - Out of the Woods

TheMReport — News and strategies for the evolving mortgage marketplace.

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TH E M R EP O RT | 47 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 ORIGINATION THE LATEST Are TRID Compliance Violations an Epidemic? Moody's Analytics reports TRID violations in more than 90 percent of residential loans. S ince the TILA-RESPA Integrated Disclosure (TRID) rule went into effect October 3, 2015, the mortgage industry has been mostly quiet about its effects— that is until now. Consumer Financial Protection Bureau (CFPB) Director Richard Cordray recently passed TRID off as being no big deal and compared the rule to the overly hyped Y2K panic, which never came into form. "When our Know Before You Owe mortgage disclosure rule took effect two months ago, some, again, asserted that its implementation would paralyze the market. In fact, applications for home purchase mortgages were up 22 percent year-over- year in October," Cordray said in his prepared remarks. He continued, "Reports from participants across the mar - ket seem to be indicating that implementation of the new rule is going fairly smoothly. So it seems that these anxieties were much like the errant predictions of technological disaster stem - ming from Y2K, which of course never materialized." But Cordray's remarks may have been spoken a bit too soon. Moody's Investors Service re - ported in December that TRID compliance violations are a widespread epidemic in mort- gage originations. According to Moody's analysts Yehudah Forster and Lima Ekram, a number of third-party firms re - viewed recent residential mortgage loans for TRID compliance and found violations in more than 90 percent of the loans. The report showed many of the TRID violations were only technical but still proved lenders are struggling to comply with the new regulation. "Many of the violations were reportedly technical in nature, such as the need to use the same spelling conven - tion for counterparties or the absence of a required hyphen. However, the TPR firms still believed the violations were material because the extent to which a secondary market purchaser, such as an [residen - tial mortgage-backed securi- ties] RMBS trust, would bear damages or costs from delayed foreclosures is still unclear without further court or CFPB interpretation," the analysts explained. The analysts suggested the influx of TRID violations could increase losses for RMBS, but that is "unclear without further interpretation by the courts or the CFPB." In addition, TRID compliance violations may also "result in delayed issuance of new securitizations owing to issuer concerns about including loans with compliance violations." "TRID arguably expands the amount of erroneous information for which a secondary market purchaser, including an RMBS trust, is liable," the report said. Moody's expects the num - ber of technical violations to subside over the next several months as lenders adjust their loan origination systems to comply with the rule. Quicken Credit Box Flies Open Borrowers with 580 credit scores obtain home loans. T he tightened credit box routinely blamed for curtailing a full-blown housing recovery turned a corner in the second half of 2015, with Quicken Loans reporting originations to borrowers with credit scores as low as 580. The Washington Post recently reported that Bill Banfield, VP of Quicken Loans, informed the paper that the lender offers FHA loans to qualified bor - rowers who have credit scores as low as 580—shattering the myth that private lenders are completely cutting off the credit hose to higher-risk borrowers. If Banfield's comments alone are not enough to ease concerns of a credit freeze, credit data and reporting agency Experian has a few statistics that could put the kibosh on claims of a credit freeze among the sub-650 credit score crowd. In Experian's Sixth Annual State of Credit Study, the firm noted mortgage originations grew 42.5 percent in the 2015 survey when compared to data collected in 2014. Apparently, Experian is not alone in its assessment. With borrowers more confi - dent across the board, Banfield with Quicken highlighted the market's next significant development—the willingness of private lenders to take a chance with well-qualified borrowers who may have had their credit histories destroyed during the downtown but who otherwise remain competent borrowers.

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