SFA Publishes Reduced Compliance Scope for Closed-End Subordinate Lien Financing
article by Structured Finance Association
On May 26, 2026, the Structured Finance Association (“SFA”) published the Closed-End Second (“CES”) Reduced Compliance Scope, referred to as the “SFA TRID Subordinate Lien Scope 1.0“, a targeted framework establishing a standardized scope for closed-end subordinate lien financing. Developed by SFA’s RMBS Third Party Review Task Force, this framework represents a reduced compliance scope relative to the full SFA TILA-RESPA Integrated Disclosure (“TRID”) compliance scope of review and is intended to serve as a baseline for third-party review firms (“TPRs”) conducting loan-level due diligence. While this streamlined scope is intended to promote consistency and efficiency, the full review scope remains available and may continue to be used when requested by market participants.
The primary distinction between the CES Reduced Compliance Scope and the full TRID review scope is the limitation of TRID testing. Under this framework, compliance review is limited to the specific components identified, with testing performed in accordance with the SFA TRID Compliance Review Scope (“TRID Grid”) published by the SFA. All other TRID-related testing, including components of the TRID Grid not expressly identified, are outside the scope of this review.
The CES Reduced Compliance Scope continues to encompass key areas such as federal and state high-cost laws, federal and state higher-priced mortgage laws, ability-to-repay requirements under the Truth in Lending Act (“TILA”), loan origination compensation rules, and rights of rescission under TILA. The intent is to help mitigate exposure to civil liability, extended rescission rights, and loan enforceability concerns, while improving efficiency for originators, assignees, and securitization trusts.
The scope applies solely to compliance reviews and does not alter credit or collateral due diligence. Its defined parameters are intended to support a consistent market approach and do not constitute definitive regulatory or judicial interpretations of TRID liability. The purpose of this documentation is to establish a consistent baseline approach to compliance testing for third-party review firms evaluating closed-end subordinate lien financing. The scope’s defined inclusions and exclusions are intended solely for compliance review purposes and do not modify other due diligence functions or reflect definitive views on how courts or regulators may interpret TRID liability now or in the future.