Fitch Report Finds TRID Non-Compliance Risk Modest for US PLS

In a report published yesterday, January 12th, Fitch Ratings states the risk of lender non-compliance with the Truth in Lending Act RESPA Integrated Disclosure (“TRID”) requirements should be modest for private label RMBS investors. Fitch acknowledges there will likely be a higher frequency of non-compliance issues as lenders begin to implement the changes required by TRID, but finds “initial due diligence sampling of prime Jumbo mortgages in the secondary market has indicated a high level of compliance issues thus far, most of which appear to be good faith errors.” 

In its assessment of the risk TRID poses to RMBS investors, Fitch assumes RMBS investors will be exposed to statutory damages of $4,000 plus legal fees while additional actual damages will be difficult to prove; class-action lawsuits are unlikely due to low limits on rewards. Furthermore, borrowers are unlikely to hire attorneys to seek damages, mitigating the chance for defensive claims in non-judicial states or affirmative claims in any state.

Based on the CFPB's public guidance on TRID liability, Fitch assumes only errors outside of any allowed tolerance in the following seven areas will be likely to be rewarded statutory damages: (i) amount financed, (ii) finance charge, (iii) annual percentage rate, (iv) total of payments, (v) payment schedule, (vi) statement of security interest and (vii) maximum allowable payment for an adjustable rate mortgage. Finally, Fitch states “uncured errors in [those seven areas] noted by a third-party due diligence firm will be assumed to be ‘apparent on its face’ to investors and will therefore carry assignee liability.” Fitch expects to only adjust its mortgage pool loss projections for uncured TRID errors in those areas.

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