Your First TRID Examination-What
the Regulators Expect.
There has been a great deal of attention paid to the idea
that the TILA / RESPA Integrated Disclosure Rules (“TRID”) will soon be implemented. These rules combine the Good Faith Estimate
from RESPA and Truth in Lending disclosures from Regulation Z which are both currently
required for a mortgage loan.
Information that fully describes the requirements of these rules is
readily available.
As new regulations are implemented, regulators develop
expectations for financial institution responses. In many cases, regulatory agencies make their
expectations known. The FDIC is a good
example. On October 2, 2015 the FDIC
released Financial Institution Letter (“FIL”) 43-2015, which describes the
current expectations for the banks that they supervise. The expectations from other regulators will
be similar. Here are the highlights of
the FIL.
Examination
Procedures: The examiners will use
the examination procedures that have been published.
If mortgage loans are part of the scope of an FDIC consumer
compliance examination, examiners will use interagency examination procedures
to evaluate financial institutions for compliance with the TRID Rule. These
procedures are available in the FDIC’s Compliance Examination Manual.[1]
To prepare for an upcoming
examination, make sure that loan staff has read through the procedures. The TRID provisions can be found in the FDIC
compliance Examination Manual in the Truth in Lending section. In the FDIC version, the parts of the
procedures that cover TRID are actually highlighted in yellow. The procedures focus on the accuracy and
the timing of disclosures.
Compliance Management Program.
One of the key components that are mentioned under TRID rules will be
the evaluation of the compliance program.
During initial examinations for compliance with the TRID
Rule, FDIC examiners will evaluate an institution’s compliance management
system and overall efforts to come into compliance, recognizing the scope and
scale of changes necessary for each supervised institution to achieve effective
compliance. [2]
This is the area that will receive
the greatest scrutiny during the first examination. Examiners will focus on the overall policies,
procedures, training and internal controls that have been established to
mitigate risk and reduce the possibility of regulatory violations. Remember under the TRID rules, there are very
strict limitations on disclosures. In
fact, deviations from the initial disclosures given to a potential borrower are
a strong consideration for whether or not the disclosures are in good
faith. The compliance program should
have components that are robust enough to address these requirements.
Timely Compliance. Examiners
will consider the fact that since the TRID rules were initially announced,
there have been several delays. This
gives financial institutions ample time to comply.
Examiners will expect supervised entities to make good faith
efforts to comply with the TRID Rule’s requirements in a timely manner.
Specifically, examiners will consider the institution’s implementation plan,
including actions taken to update policies, procedures, and processes, its
training of appropriate staff, and its handling of early technical problems or
other implementation challenges. [3]
This part of the FIL is designed
to put institutions on notice that institutions are expected to have put
forward a significant effort at compliance to be in compliance by the time the
rule is actually implemented. The
assertion that “we are still working on compliance” will be very much frowned
upon.
FDIC Approach. On the other
hand, if a plan is in place and is in the process of being implemented with
clear steps, there may be some leeway.
The FIL notes that:
The FDIC’s supervisory approach regarding the TRID Rule will
be similar to the approach the FDIC took in initial examinations for compliance
with the Ability-to- Repay/Qualified Mortgage rules that became effective in
January, 2014. [4]
This means that in the event that
your institution has put together a clear plan with benchmarks and has the
systems to monitor progress that may be enough. The approach to early compliance with regulations
that was mentioned is noted below:
During initial examinations for compliance with the new
regulations, FDIC examiners will expect institutions to be familiar with the
mortgage rules’ requirements and have a plan for implementing the requirements.
Implementation plans should contain clear timeframes and benchmarks for making
necessary changes to compliance management systems and relevant programs. FDIC
examiners will consider the overall compliance efforts of an institution and
take into account progress the institution has made in implementing its plan.[5]
Preparing for a TRID Examination
Ultimately, there won’t be a TRID
examination. Examiners and auditors will
review TRID compliance as part of an overall lending compliance
examination. When a compliance review is
scheduled these are steps that we recommend you take:
1.
Determine whether or not TRID applies. If you have made any closed end loans that
are secured by real estate, it is likely that TRID applies.
2.
Make sure that policies and procedures have been
updated to include TRID
3.
Develop a compliance plan that is documented in
writing
4.
Implement a quality control program to check
originations to which TRID applies
5. Make sure to communicate with your regulators.
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