thefiscaltimes.com | December 30, 2015
By David Dayen
When the mortgage industry attributes some of its recent problems to TRID, they aren’t referring to some unheralded Star Wars character. They’re actually engaging in a uniquely unseemly lobbying tactic: using their own failings to bludgeon basic consumer protections.
TRID stands for something called the “TILA-RESPA Integrated Disclosures” rule, an initiative by the Consumer Financial Protection Bureau to streamline the forms mortgage buyers receive at closing. And it’s being blamed for the largest drop in existing home sales in over five years. The new rule, implemented in October, has extended closing times and created confusion, lenders complain. They’ve called for TRID to be delayed, so they aren’t held responsible for any violations.
The impulse behind the rule is to actually limit paperwork. Like Russian nesting dolls, the TRID acronym has other acronyms inside it, referring to the Truth in Lending Act and the Real Estate Settlement Procedures Act. Both of those laws required multiple disclosure forms about the mortgages being sold. Different federal agencies constructed the forms, which feature overlapping, duplicative and inconsistent information that wasn’t useful for borrowers.
The Dodd-Frank law, which created CFPB, ordered the new agency to combine these myriad disclosures into a more consumer-friendly set of documents. The idea was to empower consumers with simple explanations of the terms of their mortgage, both when they filed an application and three days before they closed on a property. Then, borrowers could recognize all charges and fees, comparison shop between lenders and know exactly what they were signing at closing.
Dodd-Frank passed back in 2010. CFPB opened public comment on its TRID overhaul in July 2012. It consulted with industry and housing advocates for years, even preparing a quantitative study of the new forms with 850 consumers to gauge their effectiveness. The final “Know Before You Owe” forms came out in spring 2014, with a spate of resources for how to use them, before entering into force in October.
In other words, you could not more clearly telegraph the imminent changes to the process. Lenders were given years to provide feedback and reconfigure their systems. If there are problems, they must at least partially be chalked up to a lack of seriousness about implementation. It’s like if the software industry prepared for the Y2K bug by holding a couple of lunch meetings rather than laboriously rewriting code and testing for errors. And ultimately, this probably comes down to lenders not wanting to spend the money to ensure a smooth transition.
Mind you, responding to the greatest incidence of mortgage fraud in the nation’s history by improving disclosure forms represents the very least government could do. Yes, regulators also banned some of the worst practices. But many of these industry professionals are lucky to still be allowed to sell mortgages, or even enjoy life outside of a jail cell. So wailing about the heavy hand of government, rather than delivering a thank you note, is a bit of a joke.
But it’s also depressingly common. As CFPB Director Richard Cordray told the Consumer Federation of America earlier this month, “whenever we consider any new regulatory initiative, we can expect to hear that the ultimate effect will be to add costs that cause consumers to pay more… the cost of protecting consumers will be to constrict the availability of credit and even to drive some financial service providers out of business altogether.”
One of the ways the industry does this is by connecting difficulties to new regulations. In this case, it’s hard to know what they’re even alleging. Realtors have attributed the drop in existing home sales, and the smaller-than-expected gain in new home sales, to TRID delays. Let’s assume that other potential factors for the decline, like a thin inventory of existing homes, played no role. Are TRID delays costing the industry mortgage sales, or just delaying them?
Reports show that closing times have extended by a few days. If that’s the case, sales should bounce back in December, as closings pushed over from November finalize. And as everyone gets comfortable with the new rules, delays should decline.
When lenders make more detailed denunciations of the new rule (in particular, one community banker who spoke to The Wall Street Journal and Housing Wire), they complain about vendors and software systems not aligning with one another, and discrepancies over the meaning of some of the requirements. But mostly, they say that their compliance staffs are “nit-picking” to make sure they complete the disclosures correctly. “We’ve had huge anxiety at our company over doing it right,” said Kelly Welch of Equity Resources.
Frankly, striving to get the job done properly should be the normal course of operations, not something reserved for a new disclosure form. Lenders ought to have some level of anxiety, because when they make a mistake, an uninformed homeowner could lose their home and see their financial future ruined. That should be treated with care.
The unstated claim is that, in the world before the CFPB, nobody in the mortgage industry had any urgency about explaining to their customers what they were actually paying for. And that appears to continue. Despite this claim of persistent double-checking to eliminate errors, a report from the credit rating agency Moody’s found technical TRID violations in over 90 percent of a sample of recent loans.
It’s not just totally reasonable to expect fair dealing when you buy your house; it’s the law. And if lenders have to devote more man-hours to clearing up errors and cranking out the right forms, those are the proper costs of doing business, not excessive burdens.
Lenders tried to get a grace period from TRID enforcement in the end-of-the-year omnibus bill; they were unsuccessful. But these little freak-outs have a larger purpose; they are designed to chip away at confidence in consumer protections. They blame any increase in cost or degradation in service on regulations, even if the real culprit is the industry’s own nonchalance. They build a public impression about how regulations hurt, not how they help. And this creates a narrative for the next time the government might want to strengthen consumer safeguards in the wake of some catastrophe.
It’s a familiar game, and people shouldn’t buy it. It’s not impossible that poorly designed government directives can create unintended consequences. But the industry acts like the Boy Who Cried Wolf: Any effort to keep consumers from being ripped off is treated as a nightmarish, Soviet-style steamroller, crushing the plucky entrepreneur to bits. It’s time we pushed back on this tall tale, rather than accepting it as a pretext to unravel the regulatory state.
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