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Your First TRID Examination-What the Regulators Expect

25 January 2016

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.