DELRAY BEACH, Fla. – The first three weeks of working under the new TILA/RESPA Integrated Disclosures (TRID) has created numerous hassles for credit unions and their vendor partners.
Because lenders had to abruptly switch from one system to another, bugs arose that could not have been ferreted out beforehand.
And what is worse, say industry experts and analysts, is that consumers will get hit with several unpleasant surprises as the mortgage industry moves forward. That's because a significant unintended consequence of the CFPB's efforts to "help" borrowers will likely decrease flexibility during closings.
The new disclosures – mandated by the Consumer Financial Protection Bureau to streamline the home loan experience for consumers – have also resulted in a great deal of extra effort by credit unions and their vendor partners.
Mark Skinner, AVP of real estate and business lending for $881 million IBM Southeast Employees' Credit Union in Delray Beach, Fla., said his CU receives more than 90% of its mortgage applications online, "So TRID certainly impacts our IT resources in upgrading software and operations in configuring our online application site and internal loan origination system (LOS)."
According to Skinner, the initial document required under TRID, the loan estimate (LE), has proven to be the "easy part," while the closing disclosure (CD) has been the "arduous part."
"In supporting the LE part of TRID, we had several upgrades to our LOS, which required configuration to support the new disclosures," he explained. "In addition, because we utilize electronic signatures to expedite the delivery of our disclosures, reconfiguration impacted our resources there, too."
Skinner reported sending out the disclosures has been "relatively smooth" once the staff figured out what it needed to do
"After a couple of weeks of experience, the process is now a routine," he said. "But because the new forms have additional information, extra effort is required to prepare the disclosures. Currently, sending LEs takes about twice as long as our previous disclosure process."
To support the closing disclosure portion of TRID, IBM Southeast Employees' CU provided several internal training meetings for its mortgage staff. Skinner said the CU also offered webinars to real estate agents to help them understand the timeline and requirements of TRID's closing disclosure.
The credit union is advising real estate agents it works with to write contracts with 45 days to closing – instead of the typical 30-day period the industry has gotten used to in recent years – and use settlement companies that are familiar to help make the closing/settlement part of TRID an easier process for all.
"Next week we are going to have our first settlement using the new CD forms, so we will see how the second half of TRID shakes out soon," Skinner said.
Windy Minten, AVP of real estate lending for $1.1 billion A+ Federal Credit Union in Austin, Texas, told Credit Union Journal her CU has been prepping for the changeover since November 2014.
"We wanted to be compliant," Minten said, adding A+ uses the Encompass platform, so Minten was in communication with a project manager to help with all the various steps required.
A+ completed 12 training modules for its team, along with quizzes. "We tested for three months, so for us the launch was uneventful since we had spent so much time working on it."
To help keep track of the new procedures, Minten and her staff created a disclosure desk. Instead of a loan officer submitting documents to the members, the information now goes to a quality control person who ensures the disclosures are "1000% correct."
"We validate all information before releasing disclosures," she noted. "That has been automated as a milestone within Encompass. These milestones make sure certain steps are done correctly. Once quality control is finished and everything is validated, then it goes back to the loan officer and disclosures can be released."
The quality control step must be performed within 90 minutes to two hours, so it fits within the three-day limit to release disclosures, Minten explained. She said the members have not yet seen any differences, but they will when they try to close because there are no more simultaneous closes of the old house and the new house.
"The big hiccup will come if new disclosures have to be issued for changes to APR, or if there is a product change, because there needs to be an additional three-day waiting period," she said.
Title companies are "used to being in control" of the HUD disclosure, but Minten said with the new disclosure regime "all the responsibilities are on" the lender.
"If the lender forgets to disclose a detail such as homeowner's association fees, the lender has to eat that," she said. "Everything is about what the lender knew at the time of disclosure. The title companies are not used to not having control. The Realtors do not understand not being able to close. There will be a lot of people struggling for a while. Many people have not gone to the CFPB website to learn about the changes."
A+ has already hosted groups of Realtors for training on the new disclosures twice.
Disappointment in New Mexico
Terri Cocain, mortgage center manager for $2.1 billion Sandia Laboratory FCU, Albuquerque, N.M., was rather blunt in her assessment of TRID.
"Overall, I have been disappointed with the way it worked. It seems it was not thought out as thoroughly as it could have been, between the vendors and the CFPB," Cocain said. "Financial institutions are the ones who have to interact with the members – our reputations are on the line – but we did not have much say in implementation."
Cocain said she has big concerns with the way estimates are handled. "There is so much responsibility on lenders. If we make an error, if we so much as transpose a number, we pay for it. We have all bumped up our closing costs, which has tainted that picture for members."
What bothered Cocain the most about the transition to TRID was there were several issues that worked well in a test environment that did not work live. For example, Sandia Laboratory FCU offers "piggyback loans," which is a first mortgage followed by a second. Under the old system, the lender simply produced two estimates to make the cash to close correct. But with TRID, she reported, the estimate for the second mortgage left out the existence of the first, making the cash to close for the second a "ridiculous" number.
And despite much advance prep, "the second week was worse than the first week," Cocain reported.
"There were fixes being implemented for one issue, which then caused problems somewhere else," she said. "We were putting out fires every day. [The third week] has been a little better, but the piggyback seconds still have not been fixed."
Because not enough time has passed, none of the mortgages initiated under the new regime have closed yet. Cocain predicted when loans hit closing, all parties will have to go through a "very steep learning curve."
"We have not been able to practice because this was implemented overnight. What the title company used to handle, the HUD-1 and the Settlement Statement, the lender now has to handle."
Data Problems
Skinner of IBM Southeast Employees' CU said his staff did not have any issues with producing the new loan estimates, but they did run into other issues.
"The problems we experienced were changes to software that caused issues when marrying the data interchange between our LOS and Closing Disclosure provider," he reported. "Because TRID requires simultaneous support of the old HUD-1 Settlement Statement and the new Closing Disclosure, we found issues when preparing documents for the current HUD-1 Settlement Statement closing package on loans disclosed with a good faith estimate prior to Oct. 3."
What has happened, Skinner explained, is the elements that seemed to be designed to support the new closing requirements do not work with to the former document requirements. As a result, not all of the data mapped to the CU's closing disclosure provider as expected, forcing the staff to manually adjust information so it could continue to support the old closing packages.
'Major Issues' Still Ahead
"After a couple of software upgrades and figuring out how the systems shared information, we got back on track," Skinner said. "While we are testing our closing packages without issue for the CD, I fully expect major issues with the procedures required by the CD portion of TRID."
Under the new regime, closing disclosures are required to be available for three-day advance review by the borrowers. In addition, CUs must be able to show that members received the CD three days before closing.
"Thankfully, we have electronic methods to support the three-day review timeline," Skinner said. "However, for members that do not use an electronic method, there is a six-day waiting period – or let's just call it a week – from the day the disclosures are mailed, provided a federal holiday does not occur over the six days."
And Skinner was not done. He said the "real rub" in the closing disclosure process is getting closing fees from settlement providers well in advance of closing so the lender can deliver a CD three to six days in advance of the settlement date.
"Today, even though we request fees weeks in advance of closing, it is all to frequent we receive closing fees from a settlement attorney or company a day or two before closing," he reported. "Even worse, on some occasions we receive last minute changes on loan fees the day of closing. My biggest worry is last minute changes to fees that can trigger a new three-day waiting period and prevent a purchase from occurring as scheduled. I dread being in the position of telling one of our members we have to wait three more days when they have their furniture and clothes in a moving truck."
Because of this fear, Skinner said he and his staff have reached out to the real estate community to have them try to select settlement companies they are familiar with and trust. "Our experience has been when we use our known settlement agents, we will get closing costs well in advance of settlement date without having to worry about last minute changes."
How Long Until 'Normal'?
Skinner believes it will take "a few months to get into a groove" with the new forms. "However, I don't know how long it will take all parties to change behavior to be prepared for a closing/settlement a week in advance to support the disclosure requirements," he said.
Minten of A+ FCU said TRID is "the most comprehensive change I have seen in the business, so I knew preparation was the key."
"It is not that bad if you are prepared," she said. "I am not panicked because we took the time on it, but I am curious what it will be like when a member wants to close the next day and we have to tell them there is a three-day waiting period. The consumers will have to file complaints with the CFPB. We are telling people to make their determination first, and then not change anything, if they want to close on time. But that means consumers need to go out and do the work."
Sandia Laboratory FCU's Cocain said with TRID the 30-day close is dead, and Realtors are starting to realize that 45 days is the new minimum, with 60 days being more realistic.
"When members receive their closing documents they might like having the opportunity to review before close, but we will not be able to close as quickly," she said. "We have to deliver a closing disclosure 10 business days before close. That has changed things at the back end. I would think it will take six months for the bulk of the issues to be resolved, but it may take even longer to work out all the bugs.
"It will take consumers complaining to the CFPB to get things changed," Cocain added.
