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   ARTICLE   |   From Scotsman Guide Residential Edition   |   June 2015


The quality of your service providers could prevent a disaster come August


If you thought the U.S. Department of Housing and Urban Development (HUD) caused chaos when it updated the Good Faith Estimate (GFE) and HUD-1 forms in 2010, just wait until August. That’s when the TILA-RESPA Integrated Disclosure (TRID) forms — which essentially merge forms from the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA) — hit the mortgage industry. If you think your technology vendor has you covered and all you need to do is upgrade some software, it’s time to rethink that notion.

TRID is much more than a simple form change. Instead, it is likely to mandate changes  in title, settlement and closing processes for originators and their service providers. The Consumer Financial Protection Bureau (CFPB) has repeatedly emphasized it will not delay the Aug. 1 deadline and will not offer a grace period for enforcement. So, if your origination and closing processes are not TRID-compliant by August, the CFPB could descend on you like a comet falling from the sky.

TRID will force lenders to change the way they collaborate with service providers.

As lenders and vendors scramble to install systems and processes that will comply with the August TRID implementation deadline, it’s important to remember that technology alone will not make the transition a smooth one. And if your service providers aren’t up to snuff, you may be on the hook as well. You should already know if your institution is ready, but how can you be sure if your service providers are? What should lenders be looking for from service partners before TRID becomes the law?

Technology issues

Although TRID is more of a process change than a forms change, implementation will definitely involve quite a few technology upgrades. It won’t just be the technology generating new forms that makes a difference, however. TRID will force lenders to change the way they collaborate with service providers who handle the settlement process as well.

In essence, TRID will require originators and vendors to complete the combined form almost simultaneously rather than doing their respective parts in sequence, as in the past. Thus, it won’t just be the platform or system you’re using that matters. The system your service providers are using also will matter.

To complicate matters, only a few established technologies will serve as solid pipelines bridging title-production technology and loan origination systems. If your service provider is not hooked up to one of those conduits, you may have to make special arrangements for your software to “talk” to theirs. It is almost impossible to fill out a form collaboratively if your system can’t connect with your provider’s system.

You also want to make sure your provider’s production system is ready for the change. Many of the largest and best-known title technology providers are ready — or will be by August — but if you’re not familiar with the system your service provider uses, find out as soon as possible. Numerous settlement services companies still use proprietary or homegrown production systems, which may not be compliant with TRID. Be ready to ask hard questions of your vendors if this is the case.

Transition questions

One way or another, many of the changes required by the GFE/HUD-1 consolidation in 2010 fell to title and settlement services providers. This will not be the case with TRID. It is quite possible that lenders and originators will need to change the way they move loans from application through closing to be compliant with the rule. No title or settlement services company can do that for you.

Your service providers should be a problem-solving source for you at times like these, not an obstacle. Be sure to ask yourself — and your vendors if you don’t have the answers — the following questions over the next two months:

  • Do you alter the way you originate to accommodate your vendors’ systems and procedures, or do they adapt to yours?
  • Are your service providers fully aware of the day-to-day requirements of TRID — for their business and yours?
  • Does TRID knowledge extend from owners and executives to managers and staff?
  • Are your service providers getting enough training on the issue?

The short timeframe before TRID implementation also will mean that some businesses won’t be able to perform extensive testing on system and process changes before August. Needless to say, this is not optimal. Be sure your service providers have substantial and comprehensive contingency plans and troubleshooting procedures in place for what will likely be a fairly chaotic period after the changeover.

To get verifiable answers, you may need to go beyond
what your service providers tell you.

Finally, lenders and originators will likely have to make some changes to their own mortgage origination and settlement procedures. TRID requires several pieces of information that your vendors simply cannot supply for you. Your partners may have ideas on how to manage these processes, however. Ask them. The bottom line is that your service providers should be partners, not obstacles, during this period.

Digging up details

Of course, out in the real world, it may be tough to get your existing service partners to admit they are behind schedule or unprepared for TRID. They may even genuinely believe they are prepared, but that doesn’t necessarily mean they are. There is no standard blueprint or “best practices” road map that shows what must be done to stay on point with TRID. Instead, everyone will learn the hard way when enforcement actions begin after Aug. 1. Thus, it is imperative that you kick the tires on your service providers’ systems before you become liable for their shortcomings.

Be sure that more than just your providers’ chief executive officer and chief compliance officer can discuss TRID intelligently with you. There is no guarantee that their understanding has been effectively implemented at a day-to-day level throughout the company. Get as many specifics about staff training as possible. Find out what is being taught and emphasized, how often training is provided and the way that training is presented. Are employees being given optional-attendance webinars, mandatory half-day seminars or just written memos? You have a right to know if your vendors are fully prepared.

To get verifiable answers, you may need to go beyond what your service providers tell you. Ask to see their policies and procedures relevant to TRID changes. You need to know how their workflow will be affected and how that will affect your procedures. Ask your partners — in general — what other lenders and originators they service are doing to prepare.

Finally, it never hurts to ask around. Compare notes with peers and colleagues — to the degree they’re willing to share — and find out what the issues they're keeping an eye on for Aug. 1. If possible, inquire about your vendor partners from other clients or peers. Ask your peers if they feel shared service providers are taking a comprehensive and careful approach to the implementation.

•  •  •

Like almost everything associated with a major regulatory change, getting ready for the TILA-RESPA Integrated Disclosure rule will require expense, time and effort from all involved. It's admittedly a headache and could have unintended consequences down the road. But, like it or not, as of Aug. 1, TRID will have the force of law behind it. Cutting corners, going through the motions or, worst of all, relying on blind faith in service providers will only expose your business to real and significant consequences.


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