February 2016 - The Industry's Best Kept Secret

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TH E M R EP O RT | 23 FEATURE The True Impact of TRID When CFPB Director Richard Cordray likened TRID concerns to the Y2K fuss, he missed the fact that the long-term impact of the rule is not yet a foregone conclusion. By Debbie Hoffman and Laura Williamson T RID is clearly a hot topic in the mortgage industry. The Know Before You Owe regulatory changes, including the TILA-RESPA Integrated Disclosure (TRID), have been thoroughly discussed by thousands of industry participants and been the subject of multitudes of panels, headlines, and articles. While Richard Cordray, Director of the Consumer Financial Protection Bureau (CFPB) alluded in a December speech that TRID concerns were overblown when he compared it to Y2K, much of the conversation focused on the various loan operating system (LOS) updates that technology vendors could offer lenders seeking TRID compliance. Now that the dust of implementation has settled, it is apparent that lenders have survived the short- term effects of TRID through technology and manpower, but sole reliance on these two factors is proving to be unsustainable. In order to maintain a sustainable operation for the long haul in this post-TRID environment, lenders must leverage a consultant or third party with the expertise to view a full solution at the 50,000-foot level. Richard Cordray, certainly TRID has not been the dead stop on lending that some predicted; however, it has also surely not been an easy change for the industry. The implementation of the TRID rule in 2015 has fallen somewhere in the middle, where the short-term effects have been survivable, but interim solutions are not sustainable. Thus, the is - sue at hand is not short-term sur- vivability, but long-term viability. Lenders, mortgage brokers, as well as both settlement and real estate agents, have survived the initial hurdles. Homes continue to be sold as mortgage loans are closed, and the consumer reaction has not swung forcefully either negative or positive. However, uncertainty, challenges, and com- plications remain. Even though the change was expected, not one person in the mortgage industry wanted to see the 25 percent decline in mort- gage applications that followed the TRID implementation date in October. After this date, mortgage application rates were unusually volatile but leveled out by mid- November, thereby proving that the concern would not be whether consumers were comfortable with the new functionality of entering a mortgage, but instead whether the mortgage industry would be able to facilitate these mortgages in a timely and lawful way. The Technology Quick- fix May Not Stand the Test of Time. W ithin two months prior to TRID implementation, lenders, settlement agents, and real estate professionals began expressing material concerns regarding the length of closings. They argued that, as a result of TRID changes, closings were inching toward a 60-day period from application to closing rather than the recent histori- cal average of 42 and 47 days. Although this claim is not yet proven, given that the October closing data in Ellie Mae's Origi- nation Insight Report showed the average length of a closing remained at 46 days during October, lenders' concerns are not unfounded. Many lend- ers strongly agree that TRID is causing closing delays due to current technology. Several lenders are experiencing delays because they do not yet have the proper TRID checks in place in their existing LOS or they have invested in a "bolt-on" or "wrapper" technology and are working through integration and quality control. The key challenge in reaching a sustainable solution to TRID is the technology driving the closing. Lenders must fully integrate TRID into their LOS in order to be TRID compliant, which is an extremely intense and expensive undertak- ing. So instead, many lenders opt to leverage "bolt-on" or "wrapper" technologies. These solutions are external technologies that lay on top of and outside of an existing LOS and are capable of integrating TRID requirements. However, these solu- tions are not foolproof, causing lend- ers to allot human labor to perform quality control on the technologies' soft spots. For those lenders that utilize a Legacy LOS, full TRID integration may not even be an option. In fact, some lenders draw concern as to whether a "bolt-on" or "wrapper" will be a possibility for their system. Yes, the TRID implementation may be survivable at present, but for many industry partici- pants it will not be for very long. Companies must expend sub- stantial manual effort to solve for technological issues. Further, this effort is mostly being drawn from quality control departments that oversee all QC efforts, thereby

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