OREANDA-NEWS. Efforts aimed at a standard approach to assessing and resolving TRID errors in private label U.S. RMBS received a significant boost recently, according to Fitch Ratings.

An industry working group focused on the treatment of TRID errors in the RMBS secondary market has provided rating agencies with a draft proposal for the due diligence grading of the issues. The draft proposal reflects several months of collaborative discussions between third party review (TPR) firms, attorneys, issuers and rating agencies. The draft proposal represents a significant step forward for developing an industry standard treatment of errors related to the new residential mortgage disclosure requirements. The discussions were coordinated by the Structured Finance Industry Group (SFIG) as part of the broader RMBS 3.0 initiative.

Initial due diligence sampling of prime jumbo mortgages in the secondary market has indicated many compliance issues thus far, most of which appear to be good faith errors. The ambiguity in the rule and a lack of judicial precedent has caused uncertainty on how to assess the materiality of the errors and how to resolve them.

The draft proposal remains subject to further review and approval of the SFIG membership. Nonetheless, Fitch feels the current proposal addresses the rule's ambiguous areas in a reasonable manner. Namely, it gives consideration to the CFPB's informal guidance and also gives consideration to good faith attempts to resolve issues that do not have cures explicitly defined in the rule.

Fitch believes the market disruption to date caused by TRID errors has been disproportionate to the amount of risk the errors pose for RMBS investors. Investors will likely only be exposed to maximum statutory damages of $4,000 plus attorney's fees. Consumer claims in defense of foreclosure may occur in judicial states as the consumer will be working with an attorney; defensive claims in non-judicial states or affirmative claims in any state are less likely.

Fitch currently expects few unresolved TRID errors that are likely to be eligible for damages to remain in the final securitized mortgage pool. To the extent present, investors will benefit from modestly higher credit enhancement to help mitigate the risk. Additionally, for transactions with sufficient representations and warranties frameworks, RMBS investors will also potentially benefit from the representations by the issuer intended to protect them from losses related to compliance issues.