Most of the residential loans that have closed since the implementation of the integrated disclosure rule have some sort of violation.
A number of third-party reviews have been made on the first pipeline of loans subject to
TILA-RESPA Integrated Disclosure Rules.
Several of the firms conducting
the reviews have reported that more than 90 percent of the mortgages had TRID compliance violations.
That is according to
the report, US Mortgage Lenders Face Difficulties Complying with New Rules, a Credit Negative for RMBS, from Moody’s Investor Service.
The report, which can be purchased for $180, indicated that 300 loans from more than a dozen lenders were reviewed.
Many of the violations, however, are only “technical” in nature, such as the need to utilize the same spelling convention for counter-parties or the absence of a required hyphen.
Still, the results suggest some lenders are having difficulty complying with TRID, a credit negative because of the increased likelihood that loans with compliance violations will be included in future residential mortgage-backed securities pools.
“The TPR firms still believed the violations were material because the extent to which a secondary market purchaser, such as an RMBS trust, would bear damages or costs from delayed foreclosures is still unclear without further court or CFPB interpretation,” Moody’s said. “The number of technical violations should decline over the next several months as lenders adjust their loan origination systems to comply with the rule’s nuances.”
The loans reviewed were not connected with a securitization.
The ratings agency noted that some of the violations are likely present low risk of significant damage. Moody’s speculated that courts will not be likely to hold up a foreclosure or award damages for these kinds of violations.
“On the other hand, we believe that violations related to incorrect settlement fees, which previously did not carry assignee liability under the Real Estate Settlement Procedures Act, now carry higher risk under TRID,” the report concluded.
