Fitch Ratings has updated its loan level due diligence for residential mortgage-backed securities to include compliance grading related to the TILA-RESPA integrated disclosure rules.
The new additions are intended for third-party review firms. Fitch said that it expects the firms to determine whether loans were originated and closed in line with TRID's expectations, the agency said in a news release Monday.
Fitch also noted that third-party review firms should detail their TRID-related findings in a manner that's consistent with the guidance on TRID compliance from the Structured Finance Industry Group.
Moody's Investors Service has similarly incorporated TRID into its diligence grading guideline, Moody's Senior Vice President Yehudah Forster said. A spokeswoman for S&P Global Ratings said that the ratings agency had not updated its criteria, but S&P did release a comment in April saying it was "comfortable with SFIG's draft proposal for the scope of due diligence reviews and exception grading for TRID compliance."
Per Fitch's diligence grading methodology, loans that are found to have unresolved TRID exceptions with risk of statutory damages and assignee liability will receive "C" grades from reviewers. For these loans, Fitch will assume a $15,000 additional loss severity impact, including trust-incurred attorney's fees and statutory damages.
Loans with missing documents will receive "D" grades and are subject to the same loss adjustment as "C" grade loans.
To receive an "A" grade, the third-party review firm must note either no exceptions or satisfied exceptions. Loans will receive "B" grades when there are non-material exceptions.
Third-party review firms are further expected to provide indication in their assessments of whether there is risk of actual or statutory damages if there is an exception.
Fitch noted in the release that it will continue to monitor TRID developments, including potential further rulemaking from the Consumer Financial Protection Bureau in July, and TRID compliance results. Depending on the compliance results, Fitch may adjust its loss expectations.
Thus far, ratings agencies have not seen many transactions involving TRID loans. Forster said that Moody's had seen only two or three private-label deals with loans subject to TRID and that all the loans in the securitizations "have either been cured by the originators or have violations that aren't deemed to be material."