On October 3, 2015, the CFPB’s new TILA-RESPA Integrated Disclosure rule (TRID) took effect. According to the CFPB, the purpose of TRID was to replace four long-standing consumer mortgage disclosure forms that the CFPB considered overlapping and confusing to consumers. The four forms were replaced by two new forms: the Loan Estimate and the Closing Disclosure. The Loan Estimate is designed to help consumers understand key features, costs and risks of the mortgage loan for which they apply, while the Closing Disclosure is designed to help consumers understand all of the costs of the transaction itself. In essence, the goal of TRID is to simplify and reduce the risk of the mortgage loan process for consumers. To be sure, the new rule has caused concerns amongst lenders, who face financial penalties if they fail to meet requirements for timeliness, accuracy and completeness of the new disclosures.
In February, Fannie Mae’s Economic & Strategy Research Group (ESR) surveyed 229 senior mortgage executives representing some 205 lending institutions to examine their early experience with TRID. These executives represented mortgage banks, depository institutions andcredit unions, which were classified by loan origination volume as larger (top 15%), mid-sized (16%-35%) and smaller institutions (bottom 65%). Fannie Mae Published its findings on May 11, 2016. Some of the notable points of the survey are as follows:
- Lenders considered “managing/coordinating with third-party technology vendors” and “communication with key origination and closing players (e.g. buyer, seller and loan officer)” the two biggest challenges of TRID implementation.
- Of the lenders who found “managing/coordinating with third-party technology vendors” one of the biggest challenges during TRID implementation, 78% considered this an ongoing issue at the time of the survey (for 60% a “significant” issue).
- Lenders employed a variety of strategies regarding the outsourcing of the operational process for loan origination and closing, with 39% saying they were unsure, 24% planning to bring more in-house, 10% looking to outsource more, 12% expecting to remain the same and 15% stating “none of the above.
- Most lenders responded that TRID has not changed the competitiveness of the mortgage market, though larger institutions and mortgage banks were more likely to claim that TRID has created competitive advantages while almost one in four credit unions said TRID has negatively impacted their competitive position.
- Most lenders (87%) agreed TRID has increased the time it takes to close a loan, with the average response time being an additional seven days. Most, however, also agreed that this number will shorten over time.
- Half of lenders said TRID did not affect loan fees, but 44% said TRID has increased loan fees. Not a single lender said TRID has caused it to lower fees.
- About half of lenders said they educate consumers about TRID by directing them to the CFPB materials on TRID, while 41% said they developed their own marketing/educational materials. As a group, smaller institutions were much less likely to develop their own marketing/educational materials than larger and mid-sized institutions.
- Less than 20% of all surveyed lenders said TRID has increased consumers’ understanding of the mortgage transaction cost and mortgage loan. Only 6% said TRID has improved consumers’ mortgage shopping behaviors.
Though far from a definitive referendum on the success and effect of TRID, the Fannie Mae study seems to suggest some general patterns emerging in the first several months following the implementation of TRID. First, and most importantly, lenders do not perceive that consumers are more educated or better mortgage shoppers as a result of TRID. At the same time, almost half of lenders believe TRID has increased loan fees and almost nine out of ten believe TRID has increased the time to close a loan. Finally, it appears TRID seems to have a more negative effect on small lenders, who likely have fewer resources to adjust. This disparate effect potentially could lead to consolidation/market exit and a decrease in competition in the mortgage industry. Thus, while TRID was designed to benefit mortgage consumers, the very early returns indicate that the opposite occurred.