For mortgage lenders, the mortgage process can be daunting, with its myriad regulations and requirements. Among these, the TILA-RESPA Integrated Disclosure (TRID) Rule, implemented by the Consumer Financial Protection Bureau (CFPB) in 2015, stands out for its impact on disclosure timing and tolerance requirements for mortgage lenders. In the first two posts of this series (Part 1, Part 2) we reviewed some of the key requirements and limitations the TRID Rule imposes on lenders. In this blog post, we’ll delve into some of the legacy thresholds reviewed in TRID examinations as well as provide some useful recommendations for lenders to ensure ongoing TRID compliance. 

Overview 

The goal of the TRID Rule was to simplify mortgage disclosures and enhance consumer understanding by consolidating the disclosures into more consumer-friendly formats. It integrated the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA), requiring lenders to provide borrowers with specific disclosures at various stages of the mortgage process. By receiving disclosures well in advance (a Loan Estimate) and having a waiting period before closing (a Closing Disclosure), the TRID Rule aimed to give borrowers more time to compare offers, ask questions, and make informed choices about their mortgage.  The streamlined structure of the disclosures also provides entities buying, securing, or examining loans with a clearer and more consistent way to measure compliance and mitigate risk. 

Examination

Examinations are a powerful tool employed by the CFPB and other agencies to assess a lender’s compliance with applicable laws and regulations, including the TRID Rule. While these examinations help ensure that lenders remain in compliance and treat consumers fairly, they can be a real headache for the unprepared lender. The good news is the agencies conducting the examinations, including the CFPB, typically make available their examination playbook so that lenders can be prepared. For the TRID Rule, the CFPB published Subpart C of the TILA Examination Procedures guide to outline the process for lenders. It is important to note, however, the guide also covers the restrictions from both TILA and RESPA before the rules were combined under the TRID Rule. Below we provide an overview of the topics covered under Subpart C of the TILA Exam Procedures guide.

Accuracy Tolerances

The TILA Rule defines the accuracy tolerances required for certain calculations.  These tolerances follow the mandate to accurately disclose terms like the finance charge and the annual percentage rate (APR) to consumers who apply for closed-end credits. 

• Finance Charge – Generally, the finance charge is considered accurate if at least one of the following statements are true: 

1. The finance charge disclosed is not understated by more than $100.
2. The finance charge disclosed is greater than the actual amount.

• APR – There are two accepted ways of calculating the APR and no matter which one you use:  

1. For regular transactions, the APR is considered accurate if it is within one-eighth of one percentage point of the APR as calculated under Regulation Z. 
2. For irregular transactions, the APR is considered accurate if it is within one-quarter of one percentage point. Of the APR as calculated under Regulation Z. 

• Total of Payments – In 2017, the CFPB amended the TRID Rule and introduced a threshold for “total of payments”. Total of payments under the TRID Rule is not the same as the total of payment calculation previously seen on the Truth in Lending disclosure. The new total of payments calculation consists of all the payments of principal, interest, mortgage insurance, and loan costs as disclosed on the Closing Disclosure. The total of payments is considered accurate if at least one of the following statements are true:

1. The total of payments disclosed is not understated by more than $100.
2. The total of payments disclosed is greater than the actual amount.

Please note for the purposes of right of rescission and foreclosures the thresholds are more stringent. 

Other Notable Calculations

While there are no explicit thresholds for the following items, these calculations are still closely reviewed for accuracy:

• Amount Financed – The amount financed is the net amount of credit extended. This is not the same as the note amount or the principal amount of the loan. It is generally calculated as the total of payments less the finance charge.
• Payment Schedule – Even loans not subject to the TRID disclosure requirements may need to provide the borrower a payment schedule that includes principal, interest, and any other finance charge payable after consummation. 

Disclosure Requirements 

• Disclosure Methods for Construction Loans – Creditors have several options to disclose construction loans and construction to permanent loans.   Depending on how you choose to disclose your construction loans the timing requirements for the Loan Estimate may be different.  Appendix D and its associated commentary provides guidance and clarification on the different methods of disclosure and corresponding methods of calculations and timing requirements. 
• TIL Disclosures Still Required for Current Loans not Subject to TRID – Housing assistance programs may be exempt from the TRID disclosure requirements but they are still required to provide the borrower with TIL disclosure. 
• A special information booklet titled “Your Home Loan Toolkit - A Step-by-Step Guide,” is published by the CFPB and is required on certain purchases to be provided to the borrower no later than three business days from application. 
• Home equity lines of credit (HELOCs) require a similar brochure titled “What You Should Know About Home Equity Lines of Credit,” be provided to the borrower.  
• Adjustable rate mortgage (ARM) transactions require a booklet titled “Consumer Handbook on Adjustable Rate Mortgages,” (CHARM) be provided to the borrower.
• Creditors servicing their loans are required to provide notice to the borrower when the rate adjusts on ARM loans. 

Recommendations for Lenders 

Lenders can follow a few best practices to mitigate potential issues and become more comfortable with examination procedures. Below are some tips to help be better prepared for upcoming examinations. 

Relationship with Vendors

Your due diligence with vendors shouldn’t end once you have signed a contract.  It should be an evolving relationship to make sure your needs are met and that you are taking advantage of all the features and services available to you. Below are some areas that you may or may not know that certain vendors offer to help you in your compliance journey. 

• Locking down APR-affecting fees. Many vendor systems rely on a small checkbox on a screen to indicate whether or not a particular fee constitutes a finance charge for the purpose of calculating numerous disclosed values, such as the APR. These finance charge selections should be reviewed on a regular basis to make sure those definitions are treated consistently through your loan volume. 

Most loan origination systems (LOS)POS/LOS have this type of feature through client settings or templates. Some fee services also have this capability so it may be worthwhile to see how the two align and make edits as needed. 

• Annual check-ins with your document providers. Lenders often rely on document vendors for generating required disclosures. As part of your ongoing vendor due diligence it is recommended that you understand the process on how and when they update documents, always review the release notes to be aware of any changes, and have check-ins, at least annually to make sure if any adjustments in the entity need changes as it relates to documents. 

Establish Strong Quality Control Systems

An independent quality control system is important and oftentimes a required component of an originator’s structure. QC processes may include different components including underwriting decisioning, process adherence, as well as regulatory compliance. Quality Control can happen before and after a loan closes and can be done internally or externally.

Prefunding 

It is recommended that all originators have checks and balances as the live file moves through the origination process to ensure ongoing compliance. Depending on the size of your institution, lenders should aim to have a certain percentage of the expected monthly loan files independently verified by their quality control/compliance team.   

Post-Closing 

Post-close loan reviews are typically a standard practice for most lenders nowadays, and depending on the size of the institution, all loans may be reviewed. Whether this exercise is conducted monthly or quarterly, make sure you are incorporating a feedback loop to notify relevant parties of repeated issues and solutions to address them. 

External Party Reviews

If you are new to operating a quality control system or resources are limited, consider engaging with an external party to complete a portion of the reviews for you. Some QC vendors and law firms have examination preparation or mock audits that pinpoint deficiencies on your current process. It is certainly preferable having a third party identify these weak points in advance and not a regulator during an examination. 

Analyze Your Findings!

You have a prefunding and post-closing review process in place. Your team may even provide reports on a regular basis, what else can you do? Analyze and provide a feedback loop of the report findings. Review the previous monthly, quarterly, and annual findings and compare with current findings. Are the same issues occurring at the same frequency? If so, the QC process is not working. The purpose of QC is to address issues and see a reduction or elimination of them in future reviews. 

Get to Know Your Examiners

Do not wait to get a notification letter from your regulator to try to figure out what they will be looking for.  Make it part of your QC process or even hold mock-audits with a trusted third-party vendor on a regular basis.  The majority of the regulators have published their examination procedures online. 

Conclusion 

While the TRID Rule may somewhat be recent, examinations that cover the TRID Rule also cover thresholds that were introduced well before the CFPB combined TILA and RESPA. Fortunately, there are tools, technology, and vendors available to lenders to ensure consistent and accurate compliance.  

If you’re new to the mortgage compliance or quality control space or if it’s just been a while since you have reviewed your procedures, a good place to start and refresh are the regulator and agency sites and their reference materials:

• CFPB - TILA Examination Procedures

• CFPB - Mortgage Origination Procedures

• Fannie Mae - Lender QC Process

• Freddie Mac - Quality Control Overview

• State Regulator Sites - if you are state licensed, visit your state regulatory agency’s website to review their examination procedures, if available. 

Did You Know?

RegCheck®, Asurity’s automated mortgage compliance solution, allows lenders to detect mortgage compliance issues in real time, saving lenders valuable time and money. In addition, having a third Testing requirements in RegCheck are highly customizable, allowing lenders to quickly identify those issues that matter the most according to their business practices. If you have any questions regarding the TRID functionality in RegCheck, please contact Franci Webster at fwebster@asurity.com. 

Karol Villavicencio is the Director of RegCheck Operations and Product Management.   With over a decade of residential mortgage experience, she’s held various roles across the loan origination cycle and eventually found a home in the cross-section of technology and mortgage compliance space. As a compliance leader for RegCheck product, Karol looks to pair the advantages of technology with Asurity’s extensive domain expertise to reduce the burden of manual checks and increase visibility to the compliance health of an entity. Karol has taken on a leadership role in the creation of MISMO’s Mortgage Compliance Dataset (MCD). The new dataset will standardize the exchange of information used by state and other regulators for loan portfolio review examinations.

Jonas Hoerler is Chief Regulatory Counsel for RegCheck at Asurity. Jonas has worked in mortgage regulatory compliance for nearly 20 years, acting as staff attorney and later as senior regulatory counsel prior to joining the RegCheck team. In his current role, Jonas manages the legal and compliance requirements of RegCheck and oversees all aspects regarding legislative review and product implementation. 

The information provided in this article does not, and is not intended to, constitute legal advice and is presented for general informational purposes only.