D-day is upon us. TRID-day that is.
Oct. 3 marks the effective date of the Consumer Financial Protection Bureau’s Know Before You Owe mortgage disclosure rule, also called the TILA-RESPA Integrated Disclosures rule or TRID.
Every residential real estate transaction now requires new loan documentation consisting of two new forms: the Loan Estimate and the Closing Disclosure.
Whether the industry likes it or not, the way every transaction is handled is now very different.
So, what exactly does a post-TRID world look like?
Terry Moore, senior managing director at Accenture Credit Services, comments about how much different real estate and mortgage finance will be going forward.
For borrowers, Moore said he sees benefits, drawbacks and unintended consequences coming from TRID.
“The new home mortgage disclosure regulations will generally benefit borrowers by simplifying loan documentation, clarifying loan terms and fees, and avoiding unpleasant surprises at the closing table,” Moore said. “But we expect some negative consequences too, at least initially.”
Moore noted that pre-TRID it takes roughly 45 days on average between the borrower’s submission of the loan application and closing the loan. Moore predicts that that time span is about to grow.
“For at least the next several months, it is likely that borrowers will have to wait several days longer to close on their homes,” Moore said. “That’s because the regulations impose new waiting periods in which lenders must submit disclosure forms to borrowers, thereby extending the time between application submission and closing. As banks get up to speed on the new rules, we expect that closing turnaround times will drift back closer to 45 days.”
Moore also suggests that it will be much more complicated for consumers who want to simultaneously sell their current home and buy a new home on the same day, noting that an inaccuracy in the disclosure forms from the sale may delay the closing of the purchase.
Moore also advises consumers to be more vigilant about submitting their income verification and other required documents to the lender on time. “Submitting such documents at the last minute may cause the lender to run afoul of the new waiting period rules, thereby potentially delaying the closing,” Moore said.
For lenders, Moore said most lenders will be ready for the post-TRID world, but not everyone.
“Peeling back the onion a bit reveals that many lenders are tying their solutions together with bubble gum and rubber bands,” said Moore.
“Many lenders are still using stop gap measures and temporary fixes, so processes have to be completed manually,” Moore continued. “Lenders will be working to optimize their technology solutions for months to come.”
Moore predicts these next few months will be “somewhat chaotic” as the industry adjusts to the new normal.
“It’s not only banks that have to adjust,” Moore said. “So too will appraisers, title companies, settlement agents and others involved in mortgage transactions. If these other parties are not ready to support the new changes immediately, the closing process will not go smoothly.”
Moore also said that prior to TRID lenders had lots of “wiggle room” when it came to providing borrowers with loan disclosures.
“The trigger for such disclosures was when a loan application was submitted, and the definition of ‘loan application’ was very broad,” Moore said. “The new rules, however, narrowly define this term, thus requiring lenders to quickly prepare and send to the borrower the new loan estimate form.”
Moore also suggests that lenders will have to adjust their timetable to prepare a loan for pre-closing.
“Underwriters can no longer clear a condition – and sign off on the loan closing – a day or two before the closing,” Moore said.
“Lenders can no longer notify borrowers of the amount of the transfer fee, or certain other costs, the day before the closing,” he continued.
“There’s now a new timetable,” Moore said. “Previously, if the closing date was, say, November 1, lenders would typically have the closing documents ready by the last week in October. Under the new regulation, the documents should be ready by the third week of October at the latest.”
Welcome to the new world of lending. Appraisers are use to this kind of thing, it seems every time we turn around they are changing something. This reminds me of the doom and gloom of CU (Collateral Underwriter) and the NEW FHA regulations. Well, the NEW FHA regulations are having a negative effect which will be covered in an upcoming newsletter & blog. But until then, I’m sure we will all survive yet another lending change. As a consumer however, we will just need to plan a little more in advance, at least at these early stages.