mortgage underwriting

Post TRID Implementation, Investors are Returning More Mortgages

March 22, 2016

A consumer disclosure requirements associated with TRID are having a bigger impact than just delaying closings on home loans. The mortgage industry is also sounding concerns about the fact that some investors declined purchasing loans as a result of the potential compliance failures associated with them. This is leading to a bottleneck when lenders try to sell the loans off in the secondary market.

The primary concern across the lending industry is that some lenders could ultimately be stuck with loans if investors refuse to buy them. This could generate liquidity problems and this is especially true for mortgage banks who operate independently. The Federal Housing Administration, Freddie Mac and Fannie Mae have given lenders a grace period in order to comply with the technical requirements of the disclosure rules.

Private investors and banks, however, are primarily concerned about liability and are not given the same leeway. Private investors are showing signs that they are not as comfortable with some of the mortgages being offered to them, and are declining them when the offer is made. Lenders may have to figure out how to strike a balance between boosting their revenues with more mortgages but also protecting their risks and finding the right loans to match with investors.

The first indications of trouble appeared when Moody’s Investor Service shared in December that third party review firms determine that 90% of the first grouping of loans closed after TRID implementation had compliance issues. Many investors are choosing to be cautious rather than put their business and names on the line as it relates to complying with the government regulations. This is not surprising completely, as many investors want to avoid the potential downside of picking up risky loans. Lenders are stuck in the middle of a complex problem, trying to make mortgage loans more accessible to greater numbers of applicants while also ensuring that they have the capacity to handle it in house or the ability to shop it out to an investor.

This is yet another restrain on credit, according to lenders across the industry.  While banks may have strong enough portfolios to weather these storms. Other private lenders may be struggling if they have originated loans and they are ultimately rejected by a buyer. This could also result in a decrease of loans being offered to individuals as lenders anticipate potential refusal by the investors.

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