Mortgage Lending Looking Up...and Looking Out for "The TRID"

Finally some light at the end of the tunnel for the Mortgage Lending industry, and it’s not a train coming head on.  John Bancroft from Inside Mortgage Finance (IMF) noted, “Fannie Mae and Freddie Mac…issued $141.83 billion of single-family mortgage-backed securities during the second quarter, an encouraging 9.4 percent increase from the dreary levels recorded in the first three months of 2014.”  The market has a way to go before we can be confident it’s out of the woods but Fannie & Freddie saw a solid 15.2% increase in single-family mortgage backed securities being issued from May 2014 to June 2014.

Along with that promising news, IMF reported that lenders are improving their closing times for purchase mortgages and increasing the accuracy of good faith estimates which results in fewer closing-cost surprises for borrowers.

In the mortgage lending industry, the name of the game is having the best-in-class Loan Production processes as measured by shorter cycle-times and increased throughput, while ensuring quality credit decisions and accurate loan documentation.  I work with several mortgage lenders who use diagnostic-based analytic techniques and self-service Business Discovery platforms to continually monitor the proficiency and productivity of their Loan Production processes.  When they see blips on the performance radar, they zero in on the deal, team member and/or originator to determine root cause and effect the necessary change to bring performance back into alignment with corporate performance benchmarks.

The reason for a best-in-class Loan Production process is because Loan Originator (Broker, Correspondent, etc) “lender loyalty” is largely a function of which lender can get the best credit decision back the quickest while providing a frictionless experience in producing the interim and final loan documentation.  Improvements in “lender loyalty” performance measures increases market share of that originator’s business and that means more earning assets in the lender’s portfolio.

Here comes the TRID! The CFPB’s (Consumer Finance Protection Bureau) TILA/RESPA (Truth in Lending Act/Real Estate Settlement Procedures Act) Integrated Mortgage Disclosure rule.   In short, this rule applies to “most” closed-end consumer mortgages and mandates the consolidation of four (4)  forms down to two (2) more understandable/informative forms. The rule also mandates timing requirements for when those completed and accurate forms MUST be delivered to the loan applicant/borrower.

·         First, the Good Faith Estimate (GFE) and the initial Truth-in-Lending disclosure (initial TIL) have been combined into a new form, the Loan Estimate.  The Loan Estimate must be provided to consumers no later than the third business day after they submit a loan application.

·         Second, the HUD-1 and final Truth-in-Lending disclosure (final TIL and, together with the initial TIL, the Truth-in-Lending forms) have been combined into another new form, the Closing Disclosure.  The Closing Disclosure must be provided to consumers at least three business days before consummation of the loan.

My “spidey-sense” tells me TRID is a report specification change (new layouts, new filter criteria, new reporting elements) and a new set of performance benchmarks against which lenders MUST manage their operations. Are mortgage lenders anxiously awaiting a software “regulatory patch” from their Loan Origination System (LOS) software vendor(s)?  Maybe there’s a better way.  How about using their Enterprise Business Discovery platforms to produce reports (forms), track performance and proactively trigger alerts for loan applications requiring attention BEFORE they violate regulatory performance rules?  Today’s Business Discovery tools are by-and-large the most agile and nimble platforms for modifying existing/creating new “reports”, providing interactive performance dashboards and generating alerts.  Even if the lender doesn’t have all the necessary loan application detail flowing into their enterprise data warehouse, they can still use their business discovery platforms to bring the right data together to handle regulation changes such as TRID.    

The CFCB’s TRID rule is targeted at the core steps within the Loan Production process. After all that hard work optimizing the Loan Production process, it would be ill-fated to erode that performance as a result of scrambling to make LOS system changes and business process changes to comply with the rule. (Deadline is August 2015).  With the right business discovery platform, the new forms can be simulated within days to weeks and the new processing performance measures can be modeled and implemented now.

Still not convinced?  Please consider the fact that the CFCB has just recently completed taking over responsibility for RESPA from the Department of Housing and Urban Development.  During this several year transition, the enforcement of REPSA Section 8 was in abeyance. Industry experts are now forewarning that “…the CFCB is picking up where HUD left off, and then some.” This means there will be more rules passed down with the intent of making things clearer to the borrower. That sounds like more meaningful reports and more regulatory performance measures to implement in order to avoid costly fines for non-compliance.

TRID is considered to be massive and should not to be taken lightly. A lot can be done in thirteen-months using your business discovery platform.  Consider using it to get a jump on implementing regulatory changes such as TRID.