TheMReport

30 | TH E M R EP O RT FEATURE I know what you're thinking: Why should I read yet another TRID article? As we approach the first anniversary of the Truth in Lending Act (TILA)— Real Estate Settlement Procedures Act (RESPA) Integrated Disclosure or Know Before You Owe Rule (TRID), lenders continue to originate mortgages in a manner that they believe is consistent with the rules. But investors—and their due diligence firms—keep rejecting them, often for reasons that could be described as having "technical" or "formatting" errors. This article will look at the rea- sons why investors are continuing to proceed with extreme caution as far as TRID is concerned. Investor Risk Used to be More Specific P rior to TRID, due diligence firms focused on TILA requirements that carried not only statutory damages and/ or enhanced statutory damages, but also assignee liability. These violations were primarily associated with federal and state anti-predatory high-cost loan violations, i.e., Home Ownership and Equity Protection Act (HOEPA), where there was significant risk of financial exposure for loss. Other violations were associ - ated with former "federal box" disclosure requirements: amount financed, finance charge, annual percentage rate (APR), total of payments, payment schedule, statement of security interest and variable payment schedule respec - tively (collectively, the "enumer- ated disclosures"), on the Truth in Lending Disclosure (TIL). Assignee Liability L enders, of course, have an obligation to manufacture a mortgage according to the various compliance requirements set by state or federal regulators. Lenders selling mortgages to investors usually have a contractual obligation to manufacture the mortgage in compliance with all applicable laws. That being said, despite this broad representation and warranty of compliance with all laws found in many purchase and sale agreements, investors are still concerned with compliance defects that expose them to assignee liability. Assignee liability, as defined by TILA, generally, and under specif - ic circumstances permits consum- ers to bring a civil action against an assignee for mortgage defects that were created by a lender. As we have seen, assignee liability has primarily been viewed in the context of anti-predatory require - ments that will expose an assignee to a broad array of damages, such as private rights of action for: 1) actual damages suffered by the consumer; 2) statutory damages violations, including attorney fee and court costs; and, 3) enhanced statutory damages which include all interest and fees paid to date, and rescission… plus the ever pres - ent class action liability exposure (collectively "loss severity"). All of which could expose the investor to liabilities greater than the value of the asset. And most concerning is that HOEPA/high-cost mort- gages are not "curable". Determining Investor Risk: TRID Vs. 25 Years of TILA Litigation B eginning October 3, 2015, the effective date of TRID, the industry became hyper focused on what they perceived as "irrational" TRID loan-level review determinations made by due diligence firms. These reviews found material errors where the industry historically was not accustomed to seeing material risk. And under this entirely new disclosure schema, questions arose. Which requirements carried statutory damages tied to the enumerated disclosure elements? And which requirements carried stand-alone statutory damages (not expressly tied to enumerated disclosure elements) that could be viewed by a court as being so close to the enumerated disclosures that they become material due to the relationship even without the express connection? Since the TRID effective date, it has become clear that TRID did not change the legacy TILA liability provisions. While the fact remains that there is now an Oh No … Not Another TRID Article! In the face of post-TRID closing delays and rising loan production costs, technology is the industry's best route forward. By John Levonick

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