NEW YORK—A new report indicates that many residential mortgage loans subject to the CFPB’s TILA-RESPA Integrated Disclosure Rules (TRID) have compliance violations.
Moody’s reported that several third-party review firms have revealed to the company that more than 90% of the first pipeline of residential mortgage loans subject to TRID rules they reviewed had compliance violations. However, the review firms stated, many of the violations were only “technical” in nature.
“These results suggest that some lenders are having difficulty complying with the rules, a credit negative because it increases the likelihood that loans with compliance violations will be included in future residential mortgage-backed securities (RMBS) pools,” Moody’s stated. “The extent to which such violations would increase losses for RMBS is still unclear without further interpretation by the courts or the CFBP. Furthermore, difficulty complying with TRID may result in delayed issuance of new securitizations owing to issuer concerns about including loans with compliance violations.”
TRID, which went into effect for loans whose borrowers completed applications after Oct. 2, 2015, requires mortgage lenders to provide new and expanded loan estimates and closing
disclosures to consumers within specific time frames. Its purpose is to ensure that consumers clearly understand the cost and risk of the proposed mortgage loan and have a chance to shop for a more suitable product.
“TRID arguably expands the amount of erroneous information for which a secondary market purchaser, including an RMBS trust, is liable,” Moody’s stated.
The review was based on informal feedback of around 300 loans from more than a dozen lenders.
“The Moody's report on TRID compliance problems reinforces our concern that the CFPB remains out of touch with the impact its rules are having on consumers and the credit unions and other financial services providers who serve them,” said CUNA Chief Advocacy Officer Ryan Donovan.