Though the delay no doubt gave the industry a collective moment to catch its breath, the relief is short-lived: the new TILA-RESPA Integrated Disclosure (TRID) rules are still coming. But all the anxious anticipation may come to nothing; industry insiders say they think the transition will be easier than expected.
The implementation is now scheduled to take effect on Oct. 3; all loans made after that date will have to be TRID-compliant.
Jeremy Potter, general counsel and chief compliance officer at Norcom Mortgage, said his company beefed up its IT staff to prepare for TRID and is now training real estate agents and attorneys on how the changes will affect them.
“The biggest thing is, it’s forcing all of us to work together and communicate more and I think that’s a positive thing,” Potter said.
Potter said if there are any changes made to the terms of the loan within three days of the closing, the closing will be delayed. If the seller is depending on the proceeds of that sale to buy another property the same day, that closing will also be delayed, and so on. That’s something that concerns Potter, and many in the industry.
“There is some trepidation when transactions are tied together,” Potter said.
The new rules are intended to simplify the loan process and protect homebuyers, giving them more information, sooner, to try to avoid overwhelming them at the closing table.
Once the new rules take effect, the initial disclosure forms – currently the good faith estimate and Truth-In-Lending statement – will be combined into a new document called a loan estimate (LE). The LE must be delivered to the homebuyer or placed in the mail within three business days of application.
In addition, the forms currently known as the final Truth-In-Lending statement and the HUD-1 settlement statement will be referred to as the closing disclosure (CD). The CD must be provided to the buyer at least three days before closing so the buyer has time to review and understand them. Any significant last-minute changes to the terms of the deal may trigger a three-day postponement of the closing date.
While it doesn’t happen often, occasionally a significant defect in a home – such as a failed water heater – is discovered during the buyer’s final walk-through, which is often scheduled just hours before the closing. If the cost of repairing the problem is significant enough that it changes the terms of the deal, under the new rules, it will delay the closing at least three days.
Sandy Maier Schede, president of the Connecticut Association of Realtors and owner of Maier Real Estate in Meriden, said she likes the new paperwork, but has concerns about last-minute hiccups causing delays in closings, which can be problematic.
“It means that we’re just going to have things go more smoothly,” Schede said. “If you get those delays and you have buyers and sellers with loaded trucks, it’s not going to be happy. You’re going to have four families with loaded moving trucks. This component is not consumer-friendly.”
‘Communication Is Key’
Rich Hogan is the associate general counsel for CATIC, a title insurance underwriter. He’s been traveling around New England since January training thousands of lenders, paralegals, real estate attorneys and title agents to prepare them for the new regulations. Hogan said lenders have told him that it may take seven to 14 days longer to close loans under the new regulations, while everyone adjusts to the changes.
“I think in the beginning it will be very troubling for at least the first few months,” Hogan said. It’s a 1,888-page rule filled with dense legal language. Different people have different opinions about what it all means.”
Hogan said on one hand, consumers will understand more of the risk factors of a loan and their payments with the new closing documents, but if buyers, sellers, brokers, lenders and attorneys aren’t all communicating well, sales will be delayed and could even fall apart.
“We’ve been stressing that this rule is only going to work if there is incredible communication and collaboration,” Hogan said. “Everyone has to communicate really effectively and in a timely manner. Otherwise, I think this whole change is going to be very much for the worse.”
Lawrence M. Garfinkel is a partner at Hunt Leibert Jacobson P.C. and is a board member of the Connecticut Mortgage Bankers Association. Garfinkel is particularly concerned with “stacked” closings, where sellers are relying on funds from the sale of their home to buy another one the same day. A delay in the first closing could delay the second, which could delay other closings as well.
“How will it work when you have two different lenders managing the timeline? Realtors are going to have to help out by setting expectations,” Garfinkel said. “That will make for a smoother process.”
Garfinkel said most buyers wait until the last minute to get homeowners’ insurance, but real estate agents are going to have to coach them to get it ahead of time to help avoid delays.
“It’s a pretty resilient and creative industry and once we get into it and see the issues well figure it out and move forward,” Garfinkel said.
Garfinkel said the new disclosure has been made clearer and will be given to the buyers three days before the closing, giving them time to read and absorb before signing on the dotted line, but the new requirements could also raise the cost of loans slightly.
“There’s a cost to everything,” Garfinkel said. “The CFPB [Consumer Financial Protection Bureau] never said the process would be more cost-effective for the borrower; they said it would be more transparent.”
Email: jmorrison@thewarrengroup.com
