Understanding why TRID is such a game- changer: A Paradigm Shift
Understanding TRID may require accepting it as a paradigm shift in our way of thinking.
A paradigm is an underlying set of assumptions/beliefs that affects your opinion on a given subject. For example, one person might assume/believe that Mexican citizens that come to the U.S. are mostly honest, hard-working people, many forced about by drug warfare in part a result of the demand for products illegal in the U.S. Another person might believe/assume that they are mainly people crossing the border to take advantage of our educational, health, and other benefits without paying their fair share of taxes. As you can imagine, those two people are going to disagree over the interpretation of any immigration reform bill that is ever passed. It would probably be more productive to address their underlying beliefs (i.e., their paradigms) head-on.
TRID as a Paradigm Shift
In the same way, we see many arguments over the new TRID Rule that aren't necessarily as much a result of ambiguous language as much as they are a result of not accepting the paradigm shift that comes with TRID and the Dodd Frank Act itself.
Let me show you what I mean ...
Pre-TRID: Responsibility for Loan Disclosures
Before TRID, when we thought about our responsibility for sending a disclosure to a borrower for a mortgage loan, we thought about it from our own perspective as lender. We were to disclose those costs that we were forcing the borrower to incur. If the borrower actually incurred other costs not related to our loan, how is that our responsibility? Of course, we would disclose the interest rate, for example, as we would profit off the borrower by that amount.
Example:
But if the borrower chooses to purchase a home inspection before buying a property, how is that our concern? We're not requiring the borrower to get that home inspection. They're not using loan proceeds to pay for it. We didn't recommend the inspection company, and the borrower didn't consult our guidance beforehand.
With TRID: Responsibility for Transaction Disclosures
But the intent of the rule has changed. We need to think about it from the consumer's perspective. We're responsible for disclosing those fees the borrower is likely to incur as part of the real estate transaction, not just those fees that we benefit from or are required.
The Preamble summarizes as follows:
This amendment expands the disclosure requirements of TILA ... beyond the cost of credit to include all charges imposed in connection with the mortgage loan. [The Rule] .... made no distinction between whether those charges relate to the extension of credit or the real estate transaction, or whether those charges are imposed by the creditor or another party, so long as the charges arise in the context of the mortgage loan settlement.
Does that make sense? That the borrower can rely on our disclosures to fairly tell the story of the real estate transaction, what they can expect to pay (and not just for the loan)?
Example (carried over from above, now with new perspective):
If a couple is trying to understand whether or not they can afford to buy a house, they'll get information from the Loan Estimate provided by the bank. It is the consumer's first time, so they don't understand that a home inspection can be expensive. The bank, on the other hand, has been involved with such a transaction thousands of times, and knows that 80% of the time the borrower ultimately decides to purchase a home inspection, and that it can roughly cost $400. The Loan Estimate shows this as a charge, giving the borrowers a good picture of what buying a house will actually cost.
Conclusion
That's not to say whether the underlying TILA rule makes sense or not. And even if it does, whether it is possible to accomplish. There is certainly a tension in how far we can reasonably expect this to go. For now we'll have to live in an uncomfortable zone of not knowing how strictly regulators and courts will interpret this. Maybe, despite the Dodd Frank language, it won't be much of a change. Or maybe it will! But I suppose the point of today's letter is just to get us thinking about it the same way as them.
In Other News:
The CFPB released its complaint report yesterday, including the data on the 4,200 mortgage-related complaints it received last month. By the way, I still think most people don't realize how crazy it is that the CFPB publishes all consumer complaints on its database. Click here - I modified the search database to look specifically at mortgage-related complaints in Massachusetts. Are you on here?
Hey don't forget that we're supposedly operating under "good faith efforts" with TRID. That letter can be found here for your reading pleasure. (Just remember they've reviewed to make this official and the head of enforcement has since made some fairly tough comments on this subject.)
Edward Byers was awarded the Medal of Honor (the 6th SEAL to receive it) last week. Byers and his team rescued an American doctor from the Taliban in 2012. The team barged into the building and were immediately shot at. Byers helped save the doctor by using himself as a human shield (somehow simultaneously fighting off attackers).
Immediately after the award ceremony, Byers deflected praise to another member of his team, one that they lost in the fight, Nicolas Checque. "The award was truly his. He was an American hero. He died a warrior and he died to bring back another American. I believe our nation owes him a debt of gratitude."
By the way, sometimes we think our lives are tough. You know what Byers' plans are now? As a husband and a father who's completed 11 overseas deployments and nine combat tours (that we know of, because realistically, are all of SEAL Team 6 missions publicized??) His plans are to just put his foot on the gas! "I'm going to continue being a SEAL and take whatever job or position is next for me," he said after the ceremony.
"The American people may not always see them, we may not always hear of their success, but they are there in the thick of the fight, in the dark of night achieving their mission. We thank God they're there."
- President Obama (at the award ceremony for Byers)
Thanks so much for reading our weekly newsletters. We're not always going to be perfect, but because we always do our best and try not to overpromise, we hope that we're always going to be trustworthy. Your calls and e-mails are very helpful - please keep contributing.
**These are our opinions. We're not authorized, or willing, to express those of others.**