Compliance defects on closed mortgage loans are already a costly problem for lenders, but with the new TILA-RESPA Integrated Disclosure (TRID) rules just one month away, lenders can expect to face even more risks and costs.
Recent analysis from ComplianceEase, a provider of automated compliance solutions to the financial services industry, found that 17 percent of loans currently fail for Truth in Lending Act (TILA) reasons and another 6 percent of the loans failed for being outside of the Real Estate Settlement Procedures Act (RESPA) tolerances.
In addition, the analysis determined that compliance defects on closed loans is causing the cost of origination to rise, approximately $28 for every loan to fix these errors. This is prior to the TRID rule taking effect October 3, 2015.
“Based on our analysis, closing defects are already an expensive problem for lenders under the current rules, and are about to get riskier and more expensive under TRID,” said John Vong, president of ComplianceEase. “Lenders and settlement service providers will need to work together so they can produce higher quality loans and not add to the already high costs of origination.”
The ComplianceEase data, taken from a cross-section of 700,000 audits that were performed in ComplianceAnalyzer and RESPA Auditor during the first quarter of 2015, also estimated that the average RESPA reimbursement was $328 for the 6 percent of loans that failed the RESPA tolerance test. For the 2 percent of loans that had an uncured RESPA violation the average reimbursement was $740.
"Based on our analysis, closing defects are already an expensive problem for lenders under the current rules, and are about to get riskier and more expensive under TRID."
In addition to this reimbursement, the new TRID rule also has a three-tiered civil money penalty that can range from $5,000 per day to $1 million per day for “knowing violations.”
The analysis also showed that one year after the enactment of the Qualified Mortgage (QM) rule, 4.5 percent of QM loans failed Safe Harbor tests and 11 percent of loans were mis-categorized as to their QM status.