PERSON OF THE WEEK: Sanjeev Malaney is founder and CEO of Capsilon Corp., a provider of document and data management solutions that enable mortgage lenders, investors and servicers to increase productivity and lower costs while ensuring compliance. MortgageOrb recently interviewed Malaney to learn more about the impact that the Consumer Financial Protection Bureau’s (CFPB) TILA-RESPA Integrated Disclosure (TRID) rules are having on lenders – and what lenders can do to make compliance with the new rules less painful.
Q: The CFPB’s TRID rules have been in effect for nearly five months now. What effects are you seeing in the marketplace?
Malaney: The most significant effect of TRID we are seeing is an increase in the time it takes to close loans. The National Association of Realtors (NAR) recently found that the time to close increased from 40.9 days in December to 43.3 days in January. And, the time to close in January is 5.3 days higher than in January 2015. This increasing time to close is clearly a result of the industry struggling to close loans effectively under TRID.
As lenders grapple with closings under TRID, they are recommending extending the standard 30-day rate lock. As of the fourth quarter, 65% of lenders polled were recommending adding at least 15 days to the current rate lock, bringing it to 45 days or longer, NAR says.
Of course, as lenders and their settlement partners adjust to the new closing paradigm, time to close may improve, but are longer closes the “new normal?” Now that lenders have been closing loans under TRID for more than four months, many lenders are realizing that their current approaches to TRID are not sustainable, and only a technology-based solution can accelerate the entire closing process while ensuring TRID compliance.
Q: In your view, what are lenders struggling with most in closing loans under TRID?
Malaney: From what we’re seeing, it’s clear that lenders are struggling most with how to collaborate effectively with their settlement partners. Effective collaboration is now more important than ever for lenders, given that they carry full responsibility for providing accurate closing disclosures (CDs) and are at fault for any mistakes that happen during closings.
In preparing to deal with TRID, most lenders and their technology providers focused on calculations – establishing baselines and calculating variances – and failed to address the communication and collaboration that TRID demands in order to produce compliant, accurate, timely closing packages.
From the collaboration required to validate fees; to secure, electronic communications; to tracking any and all changes made to CDs; to assembling closing packages for electronic signature, many lenders are able to perform calculations, but find themselves ill-prepared to handle the entire closing process under TRID. Lenders need to leverage technology that, in addition to performing TRID tolerance checks, enables secure, efficient collaboration with settlement partners throughout the entire closing process.
Q: Many lenders have hired additional labor to manage closings under TRID. In your opinion, is this a wise approach?
Malaney: The short answer is “no.” While “staffing up” seems to be a popular approach for lenders to tackle compliance issues, the approach is unsustainable for a number of reasons. For one, hiring additional labor is costly and time-consuming. A lender must devote significant resources to identifying, hiring, and training qualified staff, and time to close slows while new employees get acquainted with a lender’s specific loan production process.
Beyond this, adding staff simply contributes to the seemingly never-ending increase in loan production costs. According to the Mortgage Bankers Association, personnel-related loan production expenses are double what they were in 2009, and are now averaging more than $4,000 per loan. Adding more labor to manage closings under TRID compounds the problem and continues to diminish profitability.
Furthermore, introducing more humans to the process increases the risk of human error. In fact, a December report from Moody’s Investors Service found TRID-related violations in more than 90% of the roughly 300 loans that several third-party firms reviewed for TRID compliance. Clearly, quality is an issue. And although the loan audits revealed that many of the violations were “technical” in nature, many of these violations were attributable to human error. What’s more, regardless of how “technical” in nature, violations can lead to heavy fines for the lender, and reluctance on the part of investors.
Rather than hiring additional labor, a technology-based approach to closings under TRID not only speeds the process but also eliminates human error by introducing a consistent, repeatable process.
Q: Since hiring more labor isn’t a sustainable approach in the long run, what can lenders do to improve the closing process under TRID?
Malaney: Lenders need to adopt a technology-based solution to achieve fast, compliant loan closings under TRID. The right solution would include a secure, electronic workspace designed for lenders and settlement partner collaboration. Fee data from the preliminary CD would be automatically populated on a worksheet, organized by tolerance categories. Lenders and settlement agents are able to review and validate fees, and lenders accept the final fees to order a CD from a document preparation provider.
The solution would automatically run tolerance checks and notify lenders of anything outside of tolerances. It would maintain a complete audit trail of all versions of CDs, indicating what changes were made, along with a log of electronic communications. And, the solution would give lenders the ability to automatically assemble closing packages, and distribute them electronically to borrowers for electronic signature.
By leveraging the right technology, lenders are able to speed closings, ensure compliance, and improve the overall loan experience for the borrower, overcoming any obstacles they are currently facing in closing loans under TRID.