Imagine it's early November 2015, and the first closed loans under the Truth in Lending Act (TILA)-Real Estate Settlement Procedures Act (RESPA) Integrated Disclosure (TRID) rule have made their way through loan delivery and are in the queue for post-closing audit at "The Bank" and "AA1 Lender"--two hypothetical companies with varying TRID survival strategies.
Here's a hypothetical walk through the weeks and months before and after the deadline for TRID.
TRID loans in post-closing QC review
The quality-control (QC) manager is anxious to see the first aerial view of the transaction from start to finish. As the auditor begins, there is a lot of anticipation about the possible results from the front lines all the way up to the board room.
Did all of the meetings, policy debates, legal opinions, seminars, documents, workflow diagrams, programing, procedure writing, late nights, weekends and testing actually work? AA1 Lender decided that 100 percent of August closings would go through a post-closing quality-control audit. There could be no presumptions that any product type, loan originator, processor, closer or title company was immune from a costly mistake. AA1 Lender wanted to reset its understanding of possible operational gaps or risks based on the new policies and procedures.
The Bank, on the other hand, had not identified a need for additional post-closing quality control. The Bank did not include the quality-control team in several key meetings to assess this need simply because its QC reports had very low error rates. The Bank felt existing controls were adequate to cover the new regulation. Its post-closing QC would move forward with the usual sampling of loan types, players and risks.
The first document up for review is the Closing Disclosure (CD). Right away, the reviewers at both companies recognize the challenge in trying to retrace the steps that lead up to the loan closing. Sure, it seemed easy enough to have a checkpoint that will identify the date of the borrower's signature on the CD and the date on the note or deed of trust and then confirm there were three business days in between. But as is usual today, signatures are missing middle initials, dates aren't completed on all closing documents, the CD needed to be revised for a $10 correction and the little things have become big compliance questions on a closed loan.
Looking at the initial application and early disclosures in early October, more problems emerge. Inside The Bank, the originators had spent a lot of time in training to relearn where the fees will be entered on the Loan Estimate (LE), and how to quote fees under the new change-of-circumstance rules. They practiced how to generate Loan Estimates for every scenario--from purchase to refinance, Federal Housing Administration (FHA), Department of Veterans Affairs (VA) loans and even practiced non-occupying co-borrowers without an email address.
The Bank identified more than 20 points of training and procedural changes for loan originators. This number was the tip of the iceberg, because one requirement is "learn every line on the LE" and another item is "learn the CD." The Bank assigned the origination team with saving 48 hours in the loan process, while the operational teams were also responsible for improving procedures to save 48 hours in the manufacturing process. The exercise pushed the teams to find several ways to add efficiency.
Good originators at AA1 Lender were just as prepared. They, too, saw a need to become a TRID expert in order to avoid...