Monthly Archives: January 2016

Fallout From TRID Implementation

Nobody was more sTRID picurprised than me at the fallout from the TRID implementation. I honestly believed that it was much ado about nothing. It seemed pretty straight forward and at first glance, easier to understand than the last update.  I learned a valuable lesson. Nothing is ever straight forward in the mortgage industry.

One section of the industry that CFPB missed the boat on is the construction to permanent loans guidelines. The CFPB has issued what it calls a ‘fact sheet’ regarding the disclosure of construction-to-permanent loans under the TILA/RESPA Integrated Disclosure (TRID) rule, which the CFPB refers to as the Know Before You Owe rule.  The fact sheet falls far short of the detailed guidance sought by the mortgage industry.

A construction-to-permanent loan is a single loan that has an initial construction phase while the home is being built, and then a permanent phase for when construction is complete and standard amortizing payments begin.  Although, as noted below, the TRID rule does address such loans, the rule does not provide detailed guidance on how to complete the Loan Estimate and Closing Disclosure for such loans, nor are sample disclosures included with the TRID rule. Ballard Spahr’sRichard J. Andreano, Jr. sent out a write-up on the recent attempt by the CFPB to address the construction-to-permanent loan issue.

“In the fact sheet, the CFPB notes that Regulation Z section 1026.17(c)(6)(ii) and Appendix D to Regulation Z continue to apply in the new TRID rule world, and the CFPB specifically notes that they apply to the Loan Estimate and Closing Disclosure. The cited section provides that when a multiple-advance loan to finance the construction of a dwelling may be permanently financed by the same creditor, the construction phase and the permanent phase may be treated as either one transaction or more than one transaction. The fact sheet indicates, as the CFPB staff had informally advised in a May 2015 webinar, that a construction-to-permanent loan may be disclosed in a single Loan Estimate and single Closing Disclosure, or the construction phase and permanent phase can be disclosed separately, with the construction phase being set forth in one Loan Estimate and Closing Disclosure and the permanent phase being set forth in another Loan Estimate and Closing Disclosure.

Appendix D provides guidance on how to compute the amount financed, APR and finance charge for a multiple advance construction loan, when disclosed either as a single transaction or as separate transactions. The TRID rule added a commentary provision regarding Appendix D to address the disclosure of principal and interest payments in the Projected Payments sections of both the Loan Estimate and Closing Disclosure. The commentary provision does not address other elements of the Projected Payments sections. Additionally, the CFPB does not clarify in the fact sheet that Appendix D applies only when the actual timing and/or amount of the multiple advances are not known.”

Likely realizing that this guidance would fall short of the detailed guidance, and sample disclosures, sought by the industry, the CFPB’s final statement in the fact sheet is “The Bureau is considering additional guidance to facilitate compliance with the Know Before You Owe mortgage disclosure rule, including possibly a webinar on construction loan disclosures.

facebooktwitterlinkedinmail

Predictions for Housing in 2016

costsForecasting the mortgage industry is a dangerous game. The last 8 years have been a roller coaster. However, with the thrills and chills brought on by the housing crash and recovery came some pretty useful tools. Through technology and the concerted efforts of some of the brightest minds in United States, we are able to track expectations of loan performance, housing cost trends and personal income.

Independent mortgage lenders are expecting a wave of consolidation prompted by excessive compliance costs, a tepid housing recovery and the need for more capital to grow their businesses. Roughly 20% to 25% of independent companies could be eliminated or change hands in less than two years.

According to CoreLogic, the U.S. will enter an eighth consecutive year of expansion in the second half of next year. One noteworthy, negative point however is that dollar volume of single-family mortgage originations is estimated to drop.

It’s looking like next year will bring more of the same in housing, according to CoreLogic’s (CLGX) 2016 Outlook for Housing.  “As we approach the start of 2016, the consensus view among economists is that economic growth will continue, and the U.S. will enter an eighth consecutive year of expansion in the second half of next year. Most forecasts place growth at 2 and 3 percent during 2016, creating enough jobs to exert downward pressure on the national unemployment rate,” said Frank Nothaft, senior vice president and chief economist at CoreLogic.

Nothaft predicts that housing can expect to see these five features next year:

  1. Interest rates will increase

Homeowners who have adjustable-rate mortgages or home-equity loans will most likely see a rise in their interest rate because the Federal Reserve is expected to raise short-term interest rates approximately one percentage point between now and the end of 2016.

Fixed-rate mortgages will also rise, perhaps up one-half of a percentage point between now and the end of 2016, reaching 4.5% for 30-year loans. Despite this increase in interest rates, mortgage rates will remain historically low.

  1. Household formations will significantly add to housing demand

More than 1.25 million new households will be formed in 2016 due to improvements in the labor market and lower unemployment rates. These new household formations will increase housing demand, specifically in the rental market.

  1. Rental homes will continue to be in high demand

Rental vacancy rates are at or near their lowest levels in 20 years, and rents are rising faster than inflation. High demand for rental homes—both apartments and houses—will likely continue in 2016, especially from new, young households.

  1. Home sales and home prices will likely increase

Not only is the rental market hot, but overall purchase demand may lift 2016 home sales to the best year since 2007. Nationally, home prices will likely rise at a quicker rate than inflation, but not at the same rate as last year. The CoreLogic Home Price Index showed a year-over-year increase of 6% in the last 12 months; however, 2016 is only expected to see increases of 4%-5%. This increase in home sales and home prices can be attributed to the improved economy, which has enhanced homeowners’ feelings of financial security.

  1. The dollar volume of single-family mortgage originations will fall around 10%

The single-family mortgage origination decline will occur even though home equity lending is expected to rise and originations of home purchase loans will likely rise about 10% in volume next year. The growth in those two areas will be offset by a 34% drop in refinance, reflecting the higher mortgage rates and dwindling pool of borrowers with a strong financial incentive to refinance. While single-family mortgage originations are expected to fall, multifamily originations will likely rise. This gain reflects the higher property values and new construction that adds to permanent mortgage usage.

Additionally, I would like to add my own predictions based on my personal experience this past year.

1) Most collaboration closing portals for TRID will fail, with only a handful being viable long-term solutions.

2) Current TRID requirements and the CFPB’s commitment to eClosings will drive lenders to implement a true eClosing process — sooner rather than later.

3) Because of QM, ATR and now the TRID MISMO 3.3 data requirement, many investors will push their post closing QC process to a more automated pre-closing QC process that ensures better data and document integrity, compliance and control.

4) Compliance will continue to be the most expensive and time consuming issue for both lenders and brokers.

Recently Compliance Ease, a provider of automated compliance solutions to the financial services industry, released an analysis of compliance defects for closed loans and estimated that the cost of correcting these errors is increasing the cost of origination, on average, by approximately $28 for every loan. The analysis was based on a cross-section of 700,000 audits that were performed in Compliance Analyzer and RESPA Auditor during the first quarter of 2015. It found that 17 percent of the loans failed for Truth in Lending Act (TILA) reasons. Another 6 percent of the loans—or one in 15—failed for being outside of the Real Estate Settlement Procedures Act (RESPA) tolerances.

So, this industry clearly is struggling with compliance. I would suggest that a third party compliance monthly review of your company will provide a lot of peace of mind and will be worth the cost.

facebooktwitterlinkedinmail