August 1st US Housing Apocalypse?

When speaking with leaders in the mortgage banking industry of late, the chorus always remains the same, “we are heads down on TRID.” Despite the CFPB’s recent announcement regarding leniency on enforcement of this new regulation, industry executives know full well that there is no delay. Only firms who make a “good faith effort” to comply with the new regulation will experience leniency on enforcement. The theme at lenders nationwide therefore remains “stay the course” for hitting the August 1^st deadline.

TRID has been widely recognized as one of the single most impactful regulations to befall the mortgage banking industry in recent memory. The real significance of this regulation goes well beyond the requirement to change an already comprehensive and sophisticated consumer disclosure document. By shifting the burden for the consumer closing document three days prior to close from the title company to the lender, it also forces both the lender and title companies to rethink a hundred year old workflow and business relationship, engaging in a more collaborative partnership. To accomplish this effectively, TRID requires lender reconfiguration of business rules, workflows and processes, which has a direct impact on business strategy, technology requirements and system configurations while making certain audit trails go deeper and wider. Amidst it all, lenders are having to work overtime to protect the customer experience by reengineering the loan closing process and better setting expectations with consumer to ensure a positive customer experience and to avoid multiple reschedulings of loan closings. Ultimately putting added pressure on each lender’s cost to produce, not to mention potentially increasing housing costs for consumers.

With less than 60 days remaining to implementation, lenders continue to break the glass and retrieve their proverbial Mortgage Bankers First Aid Kit in order to swiftly bandage together the disparate impact points of TRID, not only to ensure compliance, but for self-preservation. With almost two years to prepare and most vendor organizations fully focused on developing various document solutions and workflow assistance, it’s unfortunate there has been little offered in the way of a universal “one size fits all solution” that lenders can simply plug in and safely implement to help ensure compliance, workflow efficiency and a winning customer experience. Yet after twenty-seven years in the mortgage banking industry, I remain confident mortgage bankers will once again be resourceful, agile and pliable to ensuring successful adoption of the new TRID regulations to ensure consumer satisfaction. After all, it’s in our DNA. We will do what it takes, even if it means throwing bodies at it (similar to days gone by) or adding new layers of manual processes and procedures or quality control checks. I am convinced most will be ready to meet the industry’s new requirements.  But at a cost.

So the question remains, “What’s next? Where do mortgage bankers focus after August 1st?”.

As with many disruptive changes, focus before the deadline is on complying with the regulation. Afterwards the focus must shift to actually making it work effectively and efficiently. This could mean that lenders need to take a pause, step back and get back to the basics by conducting an end-to-end full-scale process assessment. A business process assessment serves to help ensure lenders are originating loans at the lowest possible cost to produce by looking to remove redundancies, maximize technology configurations, better integrate appropriate vendor solutions and new business rules, or by simply amending a series of processes and procedures in light of new ones.

Veteran mortgage banking executive, A.W. Pickel, President and CEO at Leader One Financial, is very concerned about the impact of TRID regulation on consumers. “My concern is, what happens to customers with a moving van in the driveway and due to circumstances beyond their control they now have to wait three more days to close. Regulations meant to do good may cause further harm. Will this regulation then cause realtors and loan officers to do off balance sheet items?” In regards to how to how to mitigate the risk, Mr. Pickel goes on to say, “The only way to offset this risk is through the adoption of additional procedures. In the end, however, additional procedures can equate to increased cost to produce a loan.”

Pete Lansing, former President of Colorado Mortgage Lenders Association and President of Universal Lending for over thirty-four years, feels TRID really isn’t any different than any other regulation. “Post August 1^st we will be in full force compliance evaluation and review, looking for any holes left over that were not covered before the implementation date. Every organization must keep their eye on regulatory compliance at the same time keeping customer service as its number one objective. The balance between these two objectives has always been the mortgage banker’s concern and goal. I believe these new changes are no more difficult than those previously issued by the regulatory forces.”

Taking it one step further, Gellert Dornay, President & CEO of Axia Home Loans, when speaking of his TRID implementation strategy, put it this way, “Post TRID implementation, lenders should be auditing compliance with the new rule and identifying any areas that require further training or process tweaks. However, if you’re not doing a full-scale operational assessment until after the rule has gone into effect, you’ve missed the boat.”

While the mortgage banking apocalypse is not likely to take place on August 1^st, what is more likely is that lenders are going to need to take time post-TRID implementation to conduct a full-scale audit of their end-to-end origination process in order to lower cost to produce and ensure consumer satisfaction. Based on CC Pace’s experience in conducting business process assessments in the mortgage banking industry, we encourage lenders to keep three key components in mind when conducting their post TRID operational assessments. First, be honest in asking yourself if your recently amended TRID process is actually economically “scalable”―is it scalable enough to support what is anticipated to be a growth market if secondary liquidity truly returns due to a rising interest rate environment? Second, when reviewing the operational assessment, challenge yourself with this question, “Is the right long-term answer to take the temporary bandages off and look at full-scale reconstructive surgery of processes, systems and organizational structures in order to successfully implement long-term, scalable growth strategies?” Lastly, decide on a strategy and move forward. Meaningful operational assessments that end up sitting idle on the shelf collecting dust are generally reflective of an overly conservative approach and commitment to long-term failure. Such efforts are best defined as exercises in futility.

After August 1^st there is no better time to stop, rebuild the origination’s foundation and prepare for the new mode of lending.