Why TRID Makes It Harder for Brokers to Get Best Deal for Borrowers
Wholesale lenders hope the Consumer Financial Protection Bureau's upcoming clarifications to the TILA-RESPA integrated disclosure rules will resolve lingering compliance concerns specific to the third-party origination channel.
Mortgage brokers remain perplexed over how to strike a balance between helping borrowers shop for the best deal on a loan and maintaining compliance with TRID. Specifically, how do brokers and wholesalers meet the delivery deadline and accuracy requirements for the Loan Estimate and Closing Disclosure when a loan application is resubmitted to a new lender?
"If they need to change lenders, what happens? There is not much clarity around that," said Kara Lamphere, chief compliance officer for Mid America Mortgage in Addison, Texas, a suburb of Dallas.
Borrowers must receive the upfront LE disclosure within three business days of providing a broker with the six pieces of information that constitute a loan application. In most cases, the clock doesn't stop ticking if an application is transferred to a new lender. And since closing costs vary between lenders, brokers can easily find themselves trying to reconcile a Loan Estimate that was created with a different wholesaler's closing costs in mind.
To be sure, lenders can cure fee increases that fall outside of tolerances, but it's a cost they'd prefer not to incur. And while the CFPB does allow lenders to redisclose the Loan Estimate, it's only in the event of specific "changed circumstances." Wholesalers and brokers alike remain concerned that the CFPB's current guidelines don't adequately address the multitude of unique scenarios that can play out in a TPO transaction.
For example, do the redisclosure rules treat an LE issued by a broker differently than one issued by a wholesaler? What if the loan is submitted to a new lender because the first application was denied, as opposed to withdrawing the application before it gets that far? What if the broker can simply get the borrower a better deal by switching lenders?
These questions will become more pressing as the number of brokers working in the industry continues to increase. Headcounts plummeted during the housing crisis, but the sector is experiencing a bit of a renaissance and has grown 37% since 2011, according to the Bureau of Labor Statistics.
"Brokers are very heavily regulated, so we need more guidance to know what exactly we're responsible for when we're delivering the LE," said Irene Amato, president of A.S.A.P. Mortgage Corp., a brokerage in Cortlandt Manor, N.Y.
"You have to understand, mortgage brokers are small businesses," she added. "If the large lenders didn't know how to handle it and they hired teams to figure it out and they still don't have it right, how are we, as brokers, going to take on that responsibility?"
TRID lacks specificity around brokers' role in the wholesale channel is in part because it's creditors that are responsible for the compliance, as well as the CFPB's desire to hold all types of lenders to the same requirements.
"What the CFPB said to the lender is 'you're in charge,'" said Mike Vitali, compliance officer at Trevose, Pa., software developer LoanLogics.
Before TRID took effect, the CFPB considered a suggestion to start the clock ticking on the LE deadline after the lender, rather than the broker, received the application. But the bureau decided against doing this due to the concern that this would mean consumers who worked with brokers would wait longer to receive an LE, putting them at a disadvantage to consumers who submit loan applications directly to creditors.
But is all this consternation in line with the spirit of TRID? Brokers are supposed to help borrowers find the best deal among multiple lenders, while TRID was designed to make it easier for consumers to comparison shop. With these goals seemingly aligned, it raises the question whether the CFPB intended to limit brokers' ability to transfer a loan application.
"I think the CFPB wanted to promulgate shopping," said Lamphere.
Application transfers may not be necessary in the day-to-day loan-shopping process if brokers and wholesalers have enough knowledge of each other and automation to quickly match loans with borrowers. But extenuating circumstances do exist where it is necessary.
"When the lender does the LE that means that the loan is going directly to that company. Whereas when we, the brokers, do the LE, we have the opportunity to say where we want to place the loan," said Lou Borsellino, president of Paramount Capital Services, a brokerage in Brewster, N.Y.
If the CFPB's proposed clarification establishes that brokered applications can be considered "new" after they are withdrawn from one lender and submitted to another, or that a new LE is permitted in that circumstance, wholesalers also would find helpful to know whether they would need to be aware of the transfer and document it or not.
"Does the new lender have to have proof the borrower withdrew from the previous lender? What is enough proof?" Lamphere asked.
The bureau has been considering input from stakeholders ahead of the proposed clarification and will consider additional feedback after it is released in July, according to CFPB spokesman Samuel Gilford.
While some wholesalers still have questions about TRID because of the lack of formal guidance, others said they are comfortable with the informal direction they've received from the bureau.
"I think it's easy to be a bandwagon person and everyone kind of complains about it [TRID]. We are not doing that. We actually think they've [the CFPB has] done a great job," said Mat Ishbia, president and chief executive of United Wholesale Mortgage in Troy, Mich. "Could there have been details that were easier to understand? Absolutely, there could have been, but they give those clarifications to us at least and we feel good about it."