More TRID Problems: Wary Investors Kicking Back More Mortgages

As per National Mortgage News, New consumer-disclosure requirements are doing more than delaying the closings of some home loans. Now the mortgage industry is sounding a bigger alarm, claiming some investors are refusing to buy certain loans once they close because of potential compliance failures.
The bottleneck is happening when lenders immediately try to sell loans in the secondary market. The fear is that some lenders could get stuck with loans if investors refuse to buy them, causing potential liquidity problems, especially for independent mortgage banks.

Fannie Mae, Freddie Mac and the Federal Housing Administration have given lenders a grace period for technical compliance with the Consumer Financial Protection Bureau's disclosure rules, known as "Know Before You Owe" or TRID, for Truth in Lending Act and Real Estate Settlement Procedures Act integrated disclosures. But banks and other private investors, fearing liability, are not granting that leeway.

The first inkling of trouble came when Moody's Investors Service warned in early December that several third-party review firms found more than 90% of the first pipeline of loans that closed after Oct. 3, when the rules took effect, had compliance violations. The findings were based on reviews of roughly 300 loans from a dozen lenders, said Yehudah Forster, a Moody's vice president and senior credit officer.
Mark Mason, the chairman and chief executive of $5 billion-asset HomeStreet Bank in Seattle, said some nonagency jumbo loans, custom home construction loans, and down-payment-assistance loans offered through state housing finance agencies are not being purchased by investors. However, it is unclear how widespread the issue is."A lot of [investors] are being very cautious and defensive and may be cutting back on purchases, so it's another restraint on credit," Mason said. "Banks are better able to weather any storm because they have their own portfolios. Nonbanks, if they originate loans that are rejected by a buyer, what are they going to do with them?"

The new mortgage disclosures were designed to ensure consumers have more certainty about the costs and fees in a home loan. The disclosure documents contain hundreds of pieces of information, and lenders have to verify the information that they supply is correct.
Pete Mills, the Mortgage Bankers Association's senior vice president of residential policy, said lenders want the CFPB to clarify whether "technical" errors can be fixed by lenders without incurring a penalty.

"The investors are taking a very strict view of TRID compliance and are trying to understand if some of the issues can be cured," Mills said. "Mortgage lenders that buy and package loans for sale into private-label mortgage-backed securities — a tiny market that never fully recovered from the downturn — are kicking back some loans because they don't meet the new regulations."
The chances of a TRID mistake are fairly high because the rule has some rigid conditions, such as requiring that fees be listed in alphabetical order. Yet most of the problems are technical, said Forster at Moody's. Experts cited several examples of issues lenders and investors are grappling with — including the proper use of hyphens, supplying figures with an ample number of decimal places, and the correct spelling of counterparty names.The costs for violators also are steep, which is one reason investors may be rejecting some loans. TRID essentially expands the amount of potentially erroneous information that a residential mortgage-backed securitized trust could be liable for, Forster said.
For lenders, the CFPB can impose civil money penalties of $5,000 per day per violation for noncompliance, $25,000 per day for reckless violations and $1 million per day for knowing violations. Such fines do not apply to trusts, but they fear being sued by their investors in the event of loan losses.

In October, CFPB Director Richard Cordray blamed software vendors for some of the delays. The rollout of the rule has been fraught with problems, including a delay of the initial Aug. 1 deadline and repeated demands by the mortgage industry for a grace period from enforcement.
Still, the mortgage trade group is struggling to get a grip on how big the problem is.
"We're not trying to be hysterical here, and it's hard to get [the] data," on how many loans are being "kicked back" to lenders, Mills said.
Andrew Liput, the CEO of Secure Insight, a Parsippany, N.J., company that monitors closing agents for fraud, said TRID has been a big undertaking for lenders who underestimated the added cost and time involved."A lot of the confusion is coming from folks who are a little late to the game, and the proof is there are a lot of lenders who were ready for TRID, they trained their staff, and [they] had a clear message to consumers," Liput said.He estimates compliance has added $250 to $1,000 to the cost of every loan. That includes hiring more staff, outsourcing compliance reviews and reporting to third parties. Some lenders also are paying for third-party, onsite "mock audits" that cost anywhere from $15,000 to $50,000.Liput also said the industry got into a bad habit of preparing the old HUD-1 settlement statements just a day before closing and then seeing them revised multiple times, which created confusion for consumers.

"Now you have to have a reasonable degree of certainty that you have the correct fees and costs in advance, which has turned the entire process on its ear," Liput said.Paul Miller, a managing director and head of financial institutions research at FBR Capital Markets, said primarily nonqualified jumbo mortgages are being rejected "all over the place.""In the jumbo market, [lenders] are afraid the investors will push back if they have problems," Miller said in an email.

Jumbo loans make up 10% of the overall mortgage market. It is possible that the problem is confined to a handful of jumbo-loan purchasers, or even one of them, as it is a tight-knit market.
Meanwhile, the issue of delayed closings persists.Ivy Zelman, the CEO of Zelman Associates, a housing analytics firm, sent a research note to clients last week titled "TRID a Four-Letter Word to Many at the Moment."Zelman estimated that sales of existing home loans declined by almost 20% in November from October because of TRID. Since lenders now have to give a borrower a closing disclosure form three days before a loan closes, TRID has extended loan-closing times to roughly seven days, from five, Zelman estimated. The potential for delays, albeit during a seasonal slow period, presents some downside risk for lenders, homebuilders and title firms, she said.

With TRID Regs in Place, Mortgage Industry Braces for What's Next

According to Mortgage news, Strategies that help mortgage lenders get a handle on final Dodd-Frank Act implementation costs and better reach the next generation of homeowners will be among the hot topics discussed during the 2015 Mortgage Bankers Association's Annual Convention.
"Everybody and their brother will be asking each other 'How's TRID going with you?'" said Terry Moore, senior managing director at Accenture Credit Services.

Everybody and their brother will be asking each other 'How's TRID going with you?'" said Terry Moore, senior managing director at Accenture Credit Services.

The long-term operational effects of Dodd-Frank compliance might not be clear for at least another year or two. In the meantime, as initiatives like the Truth in Lending Act-Real Estate Settlement Procedures Act Integrated Disclosures take root, mortgage bankers will be looking for any clues that can help them budget for the future.

"Everybody's going to be on the lookout for what the new normal looks like," said Rick Roque, managing director of retail lending at Michigan Mutual, a national retail and wholesale lender based in Port Huron, Mich.

With many companies adding personnel and operational support to minimize closing delays under TRID, lenders are debating whether these costs represent a short-term or permanent investment.
"I think folks should have visibility on that in the next two to three weeks," Moore said in an Oct. 5 interview.

The work to establish system and processes changes to implement TRID may be in the industry's rearview mirror, but concerns remain about other compliance requirements, including increased enforcement of fair lending regulations, said Roque.
"There will be a fair amount of conversation about what technology you use to manage TRID and fair lending requirements," he said.

As operational costs continue to rise and the Federal Open Market Committee considers a rate hike that could further hamper profits, wary lenders are sticking to a "batten down the hatches" mentality that limits new initiatives to technology and process changes that increase efficiency and reduce credit risk.

Meanwhile, opportunistic firms with the risk appetite to aggressively pursue revenue growth will focus on strategies to finance underserved borrowers or acquire competitors. Roque put his firm in this camp, and expects as much as 15% to 20% attrition in 2016 due to the likelihood of increased costs and competition.

The challenge of rising costs and slowing volume for lenders also carries over into the secondary market, where the return of private capital remains limited and investors await the Qualified Residential Mortgage securitization regulation going into effect later this year, according to Lisa Weaver, a senior vice president at ISGN.

"How big the market really is for private capital, that will be a general theme of the conference because the volumes have gone down," she said. "There's very little growth in the market."
And so long as government agencies dominate the secondary market, attendees will be interested in what they have to say about purchase criteria and risk management technology.

Attendees will also be looking for more transparency from the government-sponsored enterprises about how they price credit risk.
"I'd like to see the GSE speakers expand and clarify the present opportunities, as well as the future intention, of the new risk-sharing pricing," said Kurt Noyce, president of Embrace Home Loans.
The status of the agencies' manufactured housing rule will be another hot topic at the conference, said Joseph Murin, a former Ginnie Mae chairman who now heads an investment firm and sits on the boards of two mortgage-related companies. Attendees also will be interested in details Ginnie Mae plans to provide on its new liquidity requirements for nonbanks, said Murin, who is a member of NewDay USA's board of advisors and Cherry Hill Mortgage Investment Corp.'s board of directors.
A Federal Housing Administration proposal to establish a 12-month deadline for servicers to file mortgage insurance claims should also spark discussion, Murin said. Servicers are concerned the proposal may be too strict, given the current industry average for filing FHA insurance claims is 30 months.

Another government-related hot topic will be the additional leeway the Consumer Financial Protection Bureau is giving small and rural lenders when it comes to the Qualified Mortgage definition, he said.
In addition to recent government and regulatory issues, mortgage professionals are concerned about more long-term challenges, including how best to manage liability for third-party business partners, Murin said.
"That's an issue that's going to be more in the forefront," he said.
There also will be discussion about the future of the government-sponsored enterprises and what more the industry can do to both lend to and hire millennials, said Murin.

"The whole industry needs to think more about who is going to step in and start taking over the mortgage banking industry as time goes on," he said. "It's not something you can discuss once and forget about."

Gas below $1? Good or bad?

The impact of lower gas prices on the economy can be seen in two ways. One; on the industry related - energy, and the other on the broader economy.

Obviously the impact on the energy sector is negative and the related mortgage industry is going to be negatively impacted (states/regions that have a positive correlation with the amount of money being spent on energy).

The broader economy will have a positive impact, due to the fact that people are going to have more disposable income from the lower prices they pay at the pump; and also hopefully the lowering of inflationary pressures due to lower transportation costs. The second factor has the potential to improve the entire consumer centric economy. 

A recent article in 24/7 Wall Street/USA today questions whether gas would go below $1 a gallon in states that have lowest taxes today and have refiners that have excess capacity.

http://247wallst.com/energy-economy/2015/11/23/the-case-for-1-gas/

What did the Federal Reserve have to say?

Based on what Janet Yellen had to say, seems like it is only a matter of time before rates rise - but she did seem to indicate that she wanted to be confident before raising rates. As loan originators, this is good news in the short term that rates are going to continue to hold steady in the short term. But ideally, you need to encourage your customers to lock in to lower rates while the going is good - and move them into the pipeline.

We at Peoples Processing, are ready for your overflow files that you might have as you grapple with the file volume. Check out www.peoplesprocessing.com for more information.