Since the TILA-RESPA Integrated Disclosures (TRID) rule went into effect on October 3, 2015, the mortgage industry hasn't seen hard evidence about the effectiveness of their compliance efforts—that is until now.
Moody’s Investors Service reported Thursday that TRID compliance violations are a widespread epidemic in mortgage originations.
According to Moody's analysts Yehudah Forster and Lima Ekram, a number of third-party firms reviewed recent residential mortgage loans for TRID compliance and found violations in over 90 percent of the loans.
The report showed that many of the TRID violations were only technical, but still prove that lenders are struggling to comply with the new regulation.
"Many of the violations were reportedly technical in nature, such as the need to use the same spelling convention for counterparties or the absence of a required hyphen. However, the TPR firms still believed the violations were material because the extent to which a secondary market purchaser, such as an [residential mortgage-backed securities] RMBS trust, would bear damages or costs from delayed foreclosures is still unclear without further court or CFPB interpretation," the analysts explained.
The analysts suggested that the influx of TRID violations could increase losses for RMBS, but that is "unclear without further interpretation by the courts or the CFPB." In addition, TRID compliance violations may also "result in delayed issuance of new securitizations owing to issuer concerns about including loans with compliance violations."
"TRID arguably expands the amount of erroneous information for which a
secondary market purchaser, including an RMBS trust, is liable," the report said.
Moody's expects the number technical violations to subside over the next several months as lenders adjust their loan origination systems to comply with the rule.
Click here to view the full report.