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» VISIT US ONLINE @ DSNEWS.COM 21 wave. e market liquidity for residential loans slowed to a standstill as aggregators, TPR firms, creditors, lawyers, and rating agencies tried to distinguish between significant compliance exceptions and others that could be included in securitizations. Anyone on the boat at that time was sure to put on their life jacket while bracing against the waves and winds that effectively stopped forward progress and threatened to capsize the market. As a result, the Structured Finance Industry Group (SFIG), the trade association to the capital markets, through the SFIG RMBS 3.0 due Diligence, Data and Disclosure Workgroup took on the challenge of tying each and every provision of TRID to the specific liability provision of TILA with the primary goal of creating a uniform testing standard as a result of a consistent Truth-In- Lending Act liability interpretation according to their understanding of prevailing legal precedent and informal written guidance and webinars offered by the CFPB, as it applies to the Know Before You Owe/TILA RESPA Integrated Disclosure Rule. is workgroup included individuals representing prominent law firms, TPR due diligence companies, rating agencies, issuers, and other industry participants. is SFIG effort resulted in the first version of the RMBS 3.0 TRID Compliance Review Scope published on June 15, 2016, understanding that the conclusions set forth therein do not necessarily reflect how courts and regulators, including the CFPB, may view liability for TILA violations presently, or in the future. e first version of the SFIG TRID Compliance Review Scope proved to be the catalyst that the secondary market needed to confidently commence purchasing loans subject to TRID, providing much needed liquidity to the origination market. Since June of 2016, the rating agencies, TPR firms, and the capital market investors have confidently followed the SFIG TRID Compliance Review Scope effectively placing the private label securitization marketplace back on a strong footing. On October 18, 2018, the SFIG RMBS 3.0 Due Diligence, Data and Disclosure Working Group published an updated version to the RMBS 3.0 TRID Compliance Review Scope (v2) based on the Amendments to Federal Mortgage Disclosure Requirements under the Truth in Lending Act (Regulation Z) as published in the Federal Register [82 FR 37656] on August 11, 2017, (with an optional compliance date of October 10, 2017, and a mandatory compliance date of October 1, 2018), the updates related to the Black Hole that were effective June 1, 2018, and the Economic Growth, Regulatory Relief, and Consumer Protection Act enacted on May 24, 2018. e RMBS 3.0 TRID Compliance Review Scope v2, as it reflects the amendments made by TRID 2.0, have included additional clarity. e guidance and clarifications made by the CFPB, with TRID 2.0 and the subsequent Black Hole Amendment, effectively reinforced the risk previously identified by the original RMBS 3.0 TRID Compliance Review Scope. With 2.0, this reduced some testing requirements, reduced the materiality of certain tests, and the addition of other tests. e impact of v2 will be fewer material compliance exceptions with the associated grading that would have otherwise, previously, prevented loans from being purchased by an investor, whereby the mortgage was targeted for a rated transaction. SFIG, and its membership that participated in the drafting of the original RMBS 3.0 TRID Compliance Review Scope and in the updated v2 scope created a new standard in transparency in aiding the entire mortgage lending industry in translating and navigating the complicated mortgage lending regulatory regime with an eye toward building confidence in the secondary market. is ensured that high-quality mortgages can make their way into rated securitizations, thereby providing the necessary liquidity to the marketplace and making homeownership a reality for more consumers. Although over two years passed between the initial version of the SFIG RMBS 3.0 TRID Compliance Review Scope and the recently published v2, further refinements will be forthcoming in 2019, as SFIG continues the ongoing standardization of the TRID review scope while incorporating additional feedback from market participants, CFPB enforcement actions, regulatory clarifications, or case law. e v2 scope document is part of the ongoing output of the SFIG work groups to bring consistency to the due diligence reviews performed as part of securitization reviews. In addition to working with market participants, SFIG is actively working directly with the CFPB to share the concerns and impediments to future securitizations based on regulatory uncertainty, to attempt to obtain regulatory updates, as well as informal guidance to ensure compliant loans are flowing into ongoing securitizations to foster a robust private label securitization for RMBS transactions. ere is a common reference regarding the calm before the storm, but the real calm comes after the storm has been faced. One would be remiss to think only smooth sailing lies ahead, but the winds have shifted and with the breeze at our backs and smooth water ahead, the SFIG workgroup strives to see the private label securitization of RMBS under full sail. John V. Levonick is special counsel in the Financial Services Practice Group of Pepper Hamilton LLP's New York office. His practice focuses on consumer financial services regulatory compliance and technology. Specific areas include consumer lending asset origination, servicing, and asset purchase and sale transactions; and assisting creditors, servicers, investors, and service and technology providers with regulatory issues. Scott McNulla is Director - Regulatory Compliance at American Mortgage Consultants, (AMC). He is responsible for leading the Regulatory Compliance team and ensure the systems continue to provide accurate results and the operations staff are trained and prepared to provide top tier residential mortgage compliance reviews to clients. Anyone on the boat at that time was sure to put on their life jacket while bracing against the waves and winds that effectively stopped forward progress and threatened to capsize the market.

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