PERSON OF THE WEEK: Chris Appie is vice president and counsel for CSi, a provider of transaction risk management technology for the lending industry. MortgageOrb recently interviewed Appie to discuss CSi's solution for the Consumer Financial Protection Bureau's (CFPB) new integrated disclosure rule, including lenders' best practices in its implementation.
Q: Some lenders already have dynamic loan origination solutions that will make implementing the Truth in Lending Act/Real Estate Settlement Procedures Act (TILA-RESPA) integrated disclosures (TRID) rule less difficult. What about lenders that don't employ a fully integrated dynamic solution? What will they have to do in order to avoid compliance gaps?
Appie: The new forms are legally required to disclose only the features that apply to the transaction at hand. Absent a dynamic solution, a lender would be looking at thousands of templates to manage all possible transaction permutations. To effectively comply with TRID and meet its disclosure specifications, the documents must be truly data-driven and software-based. Lenders that don't already have a fully integrated dynamic solution will need to completely redefine the means by which they manage transactions.
For example, the rule states that if all applicable fees for a subsection on page two of the closing disclosure do not fit in the space provided, then the document must 1) borrow lines from another subsection within the table, 2) borrow lines from the other table on that page when all subsections in the table are full, or 3) expand to two pages when both tables are full. To achieve compliance with TRID, lenders must follow those steps in that order, without the use of an addendum.
The only way to satisfy these disclosure requirements is with a solution that evaluates data and dynamically assembles tables, subsections within tables, and pages based on the transaction. With some regulatory changes of the past, lenders could skate by with templates even if they were impractical from a cost and operations standpoint. I don't think that's true anymore. Lenders that haven't already implemented appropriate software to maintain compliance with the rule must do so now or connect with a provider that can help them use the new disclosures without doing a full loan origination system conversion.
Q: TRID has industry lenders scrambling to make sure they remain in compliance come Aug. 1. What is CSi's perspective on why these changes are so difficult to manage compared with past regulatory changes?
Appie: Not only is the rule lengthy (1,888 pages to be exact), but it's more complicated than it seems. In addition to the straightforward changes involving transaction data, formatting and layout, there are several requirements that – although seemingly less significant – can land lenders in hot water.
For example, the rule strictly manages the time periods for delivery of the integrated disclosures. Numerous time period disclosures, such as those for loan term, introductory period and product feature duration, must be disclosed as either a period of months, years, a combination of years and months, or years with a decimal point depending on whether the term is less than or greater than 24 months. This requires someone – either the provider or the lender – to apply the proper data analysis to disclose the data using the proper time period format.
Calculations are another reason why these changes are going to be tough to manage. Not only does the rule dictate the rounding of disclosed fees, but it also requires rounding of certain totals and subtotals, either specifically or based on a rounded amount being included in the total.
The rule contains many more of these nuances. It's not just that the CFPB is being overly particular with the new disclosures, but rather it's that TRID represents an overhaul to the mortgage origination process, its players and its technology.
Q: Other than employing a dynamic solution for loan origination, what can lenders do to prepare in anticipation of the deadline?
Appie: Taking advantage of a solution that evaluates data and dynamically assembles content based on the transaction is critical to maintain compliance with TRID. But beyond this, it is imperative for lenders to gain a thorough understanding of what the rule requires.
Although the TRID documents need to follow the model forms, the disclosure requirements are too dynamic to be reflected in the limited number of examples that have been provided by the CFPB. As a result, to fully comply with TRID and satisfy various other expectations, lenders must be prepared to do their own data analysis. Choosing to rely solely on the model forms as templates could lead to costly compliance failures down the line.
Lenders must also be aware of any gaps resulting from the integration of the TILA and RESPA regulatory frameworks. For example, creditors today typically disclose hazard insurance premiums and the term under TILA to avoid having those amounts included in the finance charge under Regulation Z. The new TRID rules do not provide a new location to disclose hazard insurance information or indicate how those amounts can be excluded from the finance charge after the rule is in effect.
Until this and other regulatory inconsistencies are formally addressed, the industry is forced to make good faith efforts to comply under the existing framework. An in-depth understanding of TRID is critical in order for lenders to be able to make legitimate good faith efforts to comply.
Q: You mentioned ‘various other expectations’ for which lenders must be prepared. What are these other expectations?
Appie: Fannie Mae and Freddie Mac have published a common dataset to implement the CFPB's new closing disclosure. The new Uniform Closing Dataset (UCD) is based on MISMO data standards. At some point in the future, the government-sponsored enterprises (GSEs) will require the UCD from lenders.
The CFPB, GSEs, consumers, lenders and every other party in the mortgage process expect real-time, automated access to transaction data, and each party may examine that data differently. The GSEs want to know a time period in months; the CFPB requires that consumers read the time period in years and months; and loan origination systems may collect the time period as a number of days.
It all comes down to the fact that TRID is considerably more than a regulatory update – it touches nearly every aspect of loan origination. Now that we've proven the industry can adapt to change on this scale, we believe that we can expect to see these kinds of content display and presentation requirements become the norm.