TRID is finally here

TRID IS FINALLY HERE, and make no mistake, TRID will negatively impact mortgage banking profitability over the next couple of quarters.   Many of the secondary marketing managers I regularly speak to plan to price their 45 day rates with 30 day prices, reducing margins to the cap markets department.  Richard Cordray has publicly stated that the CFPB is not going to be “punitive” but rather “corrective” in future audits of the new disclosures, but saying that, most companies will eat extension fees and disclosure mistakes even if the lender isn’t at fault.  Who wants a flurry of consumer complaints to attract the attention of regulators?  With compliance costs up and profitability down,  the margin for error has never been smaller.

Which brings me to the next point, mortgage fraud and its impact on a mortgage banker’s balance sheet.  CoreLogic should be out with their year over year statistics on fraud for Q2 2014 through Q2 2015 sometime early Q4 2015.   I’ll make a bold prediction– the overall occurrences of detected fraud will be comparable to the previous year with some categories going up and some down. Yep, stepping way out on a limb with that forecast.

CoreLogic will identify about $20 billion of mortgage loans with fraud or about .65 to .7 percent of all files sampled.  These statistics have been pretty consistent over the last couple of years. Thus, even with all the very impressive anti-fraud software and the best underwriting our industry has ever seen, fraudulent loan applications, like cockroaches, can be reduced but never eradicated.  How does your institution protect itself from funding a portion of the next $20 billion?

Recently I spoke to a senior ops manager who ran correspondent operations for one of the top 5 bankers before the crash.  He said, “The sooner we found out about a customer experiencing some kind of financial stress the less money we lost, we saved tens of millions by learning things early.”  Sounds obvious but there weren’t many ways to regularly monitor a TPO in the 2000’s.  I’m not saying this is universally true, but someone who is having financial difficulty is more likely to stretch ethical boundaries when making certain decisions.  I’m also not saying that you should terminate a valued customer because you learn they are involved in civil litigation or bankruptcy for example, but you’d like to know about it before their loan quality starts to slip.  This idea of monitoring a TPO after the initial due diligence is one of the founding principles here at Comergence.  The ongoing surveillance of a TPO’s background might be the difference between purchasing  a number a bad loans or flagging the account for additional QC, and not.  This is especially true in a world of delegated underwriting.

So in an environment where mistakes are less easily washed over with profits, the cost of owning a fraudulent loan has never been more negatively impactful to the bottom line.