TheMReport

32 | TH E M R EP O RT FEATURE entirely new baseline to mortgage material disclosures, one whereby the focus does not appear to be strictly based on the enumerated disclosure elements. In reviewing the Preamble, and the Kleimann Quantitative Study Report "Know Before You Owe: Quantitative Study of the Current and Integrated TILA-RESPA Disclosures," it is clear that TRID has ushered in a new disclosure system—one not entirely focused on the historically predominant, and fully defined through years of TILA litigation, enumerated disclosures that have, to date, defined how statutory damages are to be interpreted. Under TRID, the Preamble notes that these same enumerated disclosures are of little importance to consumer understanding of the transaction. For those reasons, those same enumerated disclosures have specifically been removed from the Loan Estimate altogether (except for the APR), and relegated to the last page of the Closing Disclosure so that they are disclosed 'less prominently than disclosures that are most important to consumers' understanding of their mortgage transactions...' As a result, the sec - tions of Part B of TILA that have been prior to TRID, viewed by courts as fundamentally tied to the enumerated disclosures, such as the 'clear and conspicuous' requirement under 1631(d), and thus not convey- ing stand-alone statutory liability, very well may now be viewed as applying to the new disclosures that the CFPB has now, through extensive focus group testing, deter- mined to be key to the consumer's transaction under TRID. Within TRID there is a subset of the new requirements that are clearly tied to some of the existing enumerated disclosure require- ments. Their nexus is sufficiently close that it allows due diligence firms to readily determine that vio- lations of such TRID requirements would be material violations. Conversely, there are a number of TRID requirements that may be subject to stand-alone statutory damages and can be inferred to be closely related to the enumer- ated disclosure requirements. The challenge is that there is some logical relationship to the enumer- ated disclosure obligations that could be reasonably concluded, yet the "black letter" read of TRID pro- vides no definitive (or even implicit) indication that these are not tied to the enumerated disclosures. Thus, absent of unequivocal evidence showing otherwise, due diligence firms were forced to follow the logic behind the reasonable pre - sumption that there is a connection to the enumerated disclosures and that these requirements are subject to stand-alone statutory damages. Said more simply: what, pre- TRID, used to be considered the most relevant—and material— parts of the TIL, e.g., the APR, amount financed, etc., has now been downgraded in terms of importance to the consumer's un - derstanding of the transaction, re- moved from the LE, and relegated to the last page of the CD. These were the elements that were determined to be central to the material disclosures, and as a result, through a significant amount of litigation over the past 25 plus years, were deemed to carry statutory damages, that would expose the assignee to li - ability. Now, we see the revocation of the heavily litigated material dis- closures that we were comfortable with and a new TRID disclosure regime is foisted upon the indus- try. The concern is that there are now many new parts of the LE/ CD that could be determined by a court to be integrally tied to the enumerated disclosures. Considering this potential for litigation, for which investors typi- cally wish to avoid exposure, it is important to note that a significant portion of the liquidity in the mortgage origination market has been due to the availability of the structured finance securitization model. Unfortunately, the trusts that hold these assets are not built to manage litigation where the as- signee investor could face financial loss, ranging from a nominal amount to significant loss severity. Why is TRID So Complex? T RID was created as a result of the financial crisis of 2007-2008 to remedy vague and, at the time, contradictory disclosure obligations that existed within TILA and RESPA. In addition, it allowed the Consumer Financial Protection Bureau (CFPB) to be the regulatory, supervisory and enforcement authority of this new disclosure law. However, the rule itself contained many vague and debatable requirements, thereby providing regulators with broad authority to interpret the requirements against various fact specific circumstances in an examination or enforcement action. So the most concerning element to all of this, is that the only way to establish a system of checks and balances appears to be through potentially protracted and costly litigation. While much of the focus on TRID was the CFPB's enforce - ment authority, investors are primarily concerned with judicial exposure, as TRID grants con- sumers private rights of action for certain violations against the lender and/or the investor. Also, in judicial foreclosure states, a consumer, in the defense of a foreclosure action, can cross-claim for violations of TRID and be awarded a financial set-off, for the relevant damage amounts estab - lished and affirmed by the court, including attorneys' fees. Indirect Impact of TRID V iolations of certain TRID dis- closure obligations now carry assignee liability—subtly behooving investors to audit for additional disclosure elements that may not have historically been tested. Prior to TRID, investors would simply not purchase mortgages with origination errors that ex - posed them to assignee liability. This was due to the loss severity tied to any error that had assignee liability, such as the statutory dam - ages, actual damages, enhanced statutory damages and class action liability available to a consumer for violations of the anti-predatory lending requirements of HOEPA. However, considering TRID violations are found in 90 percent of mortgages, according to Moody's Investor Service, purchasing mort - gages with no TRID risk is not feasible. While many TRID errors are subject to the TILA legacy of statutory damages and/or actual damages, this exposure is notably less than the loss severity exposure within HOEPA. So while TRID violations carry assignee liability, the reduced damages exposure should not invoke the same level of fear as HOEPA violations. Considering TRID violations are found in 90 percent of mortgages, purchasing mortgages with no TRID risk is not feasible.

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