Shh…don’t tell anyone. The secret is: you are not alone; everyone is scrambling. The TILA/RESPA Integrated Disclosure (TRID) rule is overwhelming. No one is prepared. How could they be? Take nearly 2,000 pages of rules — and a small window of time — and you will find few companies that consider themselves to be functional or ready for what is to come.
Let’s take a deep breath. Let’s use some logic. Let’s keep it simple. Let’s prepare.
TRID, at its very essence, is supposed to be about providing clarity for consumers related to the costs of credit and the terms of a loan. If lenders are to adequately prepare, they must put aside what is wrong with the rule and whether anyone will be better off and focus on the task at hand. Lenders must break preparation down into six smaller steps:
- Technology implementation
- Origination (sales) policies, education and preparation
- Operations policies, education and preparation
- Pre-closing quality assurance
- Implementation of new work flows for sales, processing, underwriting and closing
- Communication and expectation setting with third parties
While regulators may argue that the new rule was announced last year and the “window” is not that small, anyone working in the industry knows differently. Most companies have been relying on technology vendors (and in-house IT staff) to finalize and update software to manage the nuts and bolts of the new disclosures. Most developers have worked very hard to do so, but the end results have only recently been released. The reason everyone is now scrambling is because we are all asking the same question: “OK — what next?” This is overwhelming for any company, whether the legal/compliance team is comprised of 100 people or one person.
What’s next? Let’s start at the beginning. How will the sales/origination staff be affected? Policies and procedures need to be crafted to take the staff by the hand, explain the rules, set new expectations and rules of conduct, and then erect warning signs for compliance holes and traps. Because the new expectations begin with the application, defining policies and procedures around the application must be the first order of business.
Operations staff must have their own set of rules and tests to understand and manage how the loan process is changing. New guidelines mean new procedures. Define and discuss these procedures, and include your staff in the planning process. Educate everyone as to why the loan estimate looks the way it does and why it is not really an “estimate.” There are new triggers and limits on re-disclosure and changes to loan terms and how to ensure a loan is ready to close. Unless the operations staff is educated on these touch points and provided the tools to succeed, they will fail.
If quality assurance is not part of your system, it needs to be. You will not be able to simply clear a loan, send garbage to a settlement agent, and then expect it to be cleaned up prior to or at closing. Rushed closings will be extinct. You must build adequate procedures to ensure that loan and cost data are perfect from the start of the process so that the closing statement will be perfect, ideally one week before a closing. Who will be accountable for this success? How will you educate the entire staff to prevent failure?
It is a tall task to ensure implementation of the above. Agility, training and culture-building are the keys to success. The choice is yours: use TRID to put a positive spin on your company’s objective to redefine, streamline and improve processes, or allow TRID to erode your organization’s culture until poor attitudes, shortcuts and risky behavior dominate. Once you set the expectations, train and re-train. Approach loan estimate training separately from re-disclosure and closing statement training. Allow your staff to really focus and learn. Test your systems, from software to how personnel are performing, and reward compliant behavior.
Clear expectations need to be set for all participants in the process. Borrowers need to understand that the loan process will take a little longer. Title agents need to be provided clear marching orders: do it correctly and as “we” say. Realtors must be kept in the loop and must keep their expectations in check. (New timelines must be part of purchase contracts and the new timing realities need to be reinforced as closing approaches. This means new strategies for when and how walk-throughs are accomplished and how to set an ideal target for closing.) Be direct, honest and clear. You will be doing everyone a favor, even if they do not like what they hear.
Lastly, the attitude company leaders demonstrate will communicate unspoken words to your entire company and related parties, such as borrowers, realtors, title agents and regulators. Be positive. Keep the entire team in the loop as to your progress. Celebrate success.
When we meet with clients to plan for TRID, we see a scared look in their eyes (or is that just exhaustion?). However, when we carve up the objectives into simple acts of process improvement — and logical steps of a journey — with defined expectations for all, we see the look of relief from seasoned legal and compliance professionals. There are very easy tactics for the development of new policies and procedures. It all starts with just taking small steps, one process at a time. Our approach is to merge existing procedures into the new reality, with feedback from sales and operations, but without forcing major changes down the throats of staff, borrowers and vendors. One step at a time — that is how we teach our kids to walk, talk and eat. One step at a time is how the financial services industry will survive and how companies can avoid major upheaval.
The stakes are high. Putting aside the need to avoid huge penalties and countless lawsuits, the most significant goal is for your company’s new processes to be well tuned so that investors will still be willing to purchase your loans and your company is seen as a leader in compliance. It all starts with the first step, and then the second…
You are not alone. Everyone is scrambling. There is a better way: simple policies, new internal guidelines, clear communication and a winning attitude. You can do it.