With the two-year anniversary of the TILA/RESPA Integrated Disclosure rule (known informally as TRID) implementation happening this month, it’s a good time to step back and take a look at its impact on the mortgage insurance industry and the settlement agents industry. Though it initially met with some resistance, TRID will likely remain as part of a core set of protections for borrowers, along with the qualified mortgage rule, which ensures borrowers aren’t put into loan products that they don’t have a verified ability to repay. With this strong framework in place, the mortgage industry can maintain strong ethics, pro-consumer practices, and greater innovation and transparency.
Where It All Began
TRID, of course, was born in a context of financial crisis and regulatory response. Deregulation during the 1990s and early 2000s was arguably a contributing factor in creating the financial crisis. The financial crisis, in turn, led to the passage of the Dodd-Frank Act (Dodd-Frank), which included substantial new regulatory requirements designed to prevent a similar crisis from occurring in the future. Dodd-Frank also established the Consumer Financial Protection Bureau (CFPB), the new regulator on the block, which was structured as an independent agency and not subject to congressional appropriations. Compliance costs associated with meeting TRID’s very precise requirements increased, as did resulting origination costs. The initial enforcement posture of the CFPB was aggressive, making lenders, originators, investors, and other market participants unwilling to take on compliance risk.
While the pendulum may have swung too far, not all provisions of Dodd-Frank have had a negative result. TRID, for example, was designed to empower borrowers with clear information, and recent surveys show that consumer satisfaction has increased. Implementation was bumpy, but it also drove innovation and streamlined processes. Today, the regulatory framework seems to be moderating a bit, with a presidential executive order aimed at reducing regulation and controlling regulatory costs. The CFPB seems to be more forthcoming with publishing guidance to clarify uncertainty on the interpretation of TRID that has existed for the past two years, suggesting that we may lose some of the compliance frustrations of recent years while keeping the advantages.
A Bumpy Start
TRID was designed with the underlying goal of empowering borrowers with clear information to make informed choices on getting a mortgage. This works in part by requiring standardized disclosures, known as the Loan Estimate and the Closing Disclosure. TRID’s precise requirements are intended to allow borrowers to compare the cost of the mortgage transaction offered from lenders and originators.
TRID’s initial impact was not entirely positive. At the outset, it slowed turnaround times for the entire process. There was a lack of clarity around what exactly the rule required of different parties, and the CFPB was slow to publish clarifying guidance, which led some to question the rule’s value. With time, however, many of the initial questions and uncertainties have been resolved and TRID has led to significant beneficial changes.
Inspiration Leads to Innovation
As processes have become more streamlined and TRID has been incorporated into day-to-day business, innovation is following. As a result, industry standards for consumer experience and compliance in the mortgage industry have evolved greatly in just two years. In an industry long considered short on technological innovation, this progress is welcome news.
What’s on Tap for TRID
As the industry shifts to create more transparency for the borrower, I’m optimistic that the protections trickling throughout the mortgage and settlement agency ecosystem will continue to spur responsible growth for the industry and, ultimately, help people realize their dream of homeownership. The compliance burden is easing as regulators publish guidance that addresses existing uncertainties. As that process continues, lenders will feel more comfortable expanding the number of loans they feel can be safely made without undue compliance risk, and more consumers will realize the American Dream of homeownership in a compliant, understandable, and timely fashion.