Supervisory approach to TRID
When the final TILA-RESPA integrated disclosure (TRID) amendments to Regulation Z were published on Nov. 20, 2013, with an effective date of Oct. 3, 2015, it seemed there was plenty of time to install software system updates, create new expectations with closing agents and settlement service providers, train staff and implement the new requirements before the effective date. As the implementation date approached, many industry participants became concerned about the looming deadline. As familiarity with the amendment grew, so did the realization of the breadth and complexity of the changes, and the potential for regulatory, compliance and operations risk that complexity created.
After much pressure from Congress, vendors and industry trade groups, the regulators issued two letters that were designed to allay everyone’s concern regarding the potential risk related to the TRID.
The first letter dated June 3, 2015, from the Consumer Financial Protection Bureau (CFPB or Bureau) addressed the original TRID effective date and was sent to several members of Congress. It outlined the CFPB’s implementation activities and its approach to regulatory oversight of TRID implementation. According to the letter, Director Richard Cordray spoke to other regulators and clarified that the Bureau’s “oversight of the implementation of the rule will be sensitive to the progress made by those entities that have squarely focused on making good-faith efforts to come into compliance with the rule on time.” This approach was characterized as being similar to that followed in the early months after the effective date of the new mortgage rules in January 2014.
The second letter was issued by the Federal Financial Institutions Examination Council (FFIEC) member agencies1 just days before the actual TRID effective date. The letter was provided to mortgage industry trade groups and acknowledged the “significant systems and operational changes” and the “extensive coordination with third parties” required of the mortgage industry to implement TRID. On the topic of regulatory supervision, the letter stated:
“During initial examinations for compliance the [agency’s] examiners will evaluate an institution’s compliance management system and overall efforts to come into compliance, recognizing the scope and scale of changes necessary for each supervised institution to achieve effective compliance. Examiners will expect supervised entities to make good faith efforts to comply with the rules’ requirements in a timely manner. Specifically, the examiners will consider: the institutions’ implementation plan, including actions taken to update policies, procedures and processes; its training of appropriate staff; and its handling of early technical problems or other implementation challenges.”
Although both letters promised an initial period of relaxed enforcement, neither letter stated a specific timeframe, nor was there statutory or regulatory force behind them. This was far from the formal statement sought; however, it was better than strict enforcement on such a complex set of rules from the beginning.
Since implementation, the struggles continue for the industry to come into full compliance with the TRID rules. The challenges take many forms: difficulty interpreting the regulation; differing interpretations between lenders, settlement service providers, vendors and secondary market participants; gaps in system updates; and multiple system updates to name only a few challenges. In many instances, manual processes were introduced or unproven processes were followed so as to not stall the mortgage loan pipeline. However, some mortgage lenders reduced product offerings. All of these challenges pose risk of noncompliance and unfortunately responses to requests for clarification and guidance from various industry participants to the CFPB have been slow in coming.
We are closing in on six months of compliance with the TRID rules. It is uncertain, but the time period for relaxed supervision may be coming to a close. With that possibility, testing continues to play an important role in the implementation process. Internal and external testing of system output, closed files and vendor deliverables in every aspect of consumer real estate lending is critical. Implementation of modifications and corrections to processes and output should be timely, including modifications initiated when regulatory guidance alters initial interpretations. When the guidance results in changes that cannot be applied retroactively, mortgage files should be documented appropriately and processes should be changed to reflect the necessary changes. These are the types of actions that will put lenders’ TRID compliance in the best light possible when normal supervision activities resume.
1The member agencies of the FFIEC are the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the national Credit Union Administration, the Office of the Comptroller of the Currency, the Consumer Financial protection Bureau and the State Liaison Committee.