Mortgage News Daily
8 minute read | June.12.2015
Mortgage industry players have had to adapt quickly in recent years to the evolving regulatory environment, and the latest scramble for mortgage lenders includes the various downstream effects of pending rule changes set to take effect on August 1, 2015, related to disclosures required under the implementing regulations of the Truth-in-Lending Act (“TILA”) and the Real Estate Settlement Procedures Act (“RESPA”). A critical factor to successful implementation of this historic set of rule changes, known as the TILA-RESPA Integrated Disclosure (“TRID”) rule, is coordinating with various vendors to address new timing and information requirements for Loan Estimates and Closing Disclosures, which are creating project management nightmares for mortgage professionals growing weary of the regulatory onslaught of revised regulations and enforcement actions.
“Despite the relative speed with which many companies have adapted to various rule changes since the CFPB came online, there seems to be a new rule change waiting in the wings at almost every turn,” observed Elizabeth McGinn, Partner in the D.C. office of Buckley Sandler. “To make matters worse, managing service providers through the changes has undoubtedly tested the strength of deep industry relationships that have been in place for decades.”
Synchronizing TRID-related changes with third party mainstays throughout the origination and closing processes has required extensive planning with mortgage brokers, software vendors, title companies, and closing agents, all of whom play a significant role in ensuring that Loan Estimates and Closing Disclosures (and any revisions thereto) are delivered to borrowers in an accurate and timely fashion. Importantly, as the CFPB has made clear repeatedly in stating its vendor management expectations, the mortgage lender will bear primary responsibility for any failure to comply with the new TRID rules, regardless of whether such failures are the result of vendor missteps.
“There is a lot of concern that vendors and various critical third parties will not be up to the task,” notes Moorari Shah, Counsel in Buckley Sandler’s Los Angeles office. “As a result, we are seeing a number of companies revising service provider contracts in an effort to have better visibility and control over the end-to-end process of loan origination.”
While many will sweat through the summer months in hopes of a flawless transition, TRID represents just the latest vendor management test for an industry that has already perspired through plenty. McGinn and Shah also recommend that legal and compliance personnel take note of recent guidance and enforcement actions which raise vendor management issues specific to the mortgage industry, including oversight of (i) mortgage servicers, (ii) mortgage advertising companies, and (iii) relationships between loan officers and title companies.
Amongst the most difficult adjustments companies have had to make has been increased oversight of mortgage servicers, which continues to consume considerable compliance resources and expense. Regulators are focused in particular with ensuring that servicers (i) have instituted policies and procedures consistent with new regulations and guidance, and (ii) comply with collections and credit reporting requirements:
Mortgage Advertising Companies
The CFPB has taken direct aim at deceptive mortgage advertisements in 2015, particularly those that imply an affiliation with programs offered by the U.S. government. At least a handful of enforcement actions have been announced by the Bureau during the first half of the year, including a simultaneous announcement in February against three private mortgage lenders that sent mailings simulating notices from the U.S. government despite the fact that none of the companies had any connection to a government agency. In bringing these actions, the CFPB made note of the customary practice of mortgage brokers and mortgage lenders to hire marketing companies to produce advertisements for mortgage credit products:
Relationships between loan officers and title companies
Another area of focus for the CFPB has been referrals made by loan officers to title companies in exchange for cash and marketing services:
Note: This article previously appeared in the June 12, 2015, issue of Mortgage News Daily.