We are finally in it’s midst, folks. The long awaited lending guideline change is here, and for loan applications taken as of October 3rd, 2015, TRID guidance must be followed. As a quick refresher, TRID is the acronym for “TILA-RESPA Integrated Disclosure”. The new regulations cover a multitude of printed pages that we will not go into here. The most visible impact, & the one that those in the industry are watching so very closely, is the requirement that a borrower on a mortgage loan must now have the ability to review his Closing Disclosure no less than three business days prior to closing. Frankly, this in of itself is not a bad thing at all, & really should result in smoother closings once everyone gets to the closing table. You might recall that the Closing Disclosure is replacing the HUD-1 & Truth in Lending disclosures that are currently part of a closing. Those of us in the industry have sat through numerous seminars, & webinars ad nauseam, so this article will not get into the mundane TRID theory. Instead, we’ll look at some practical points that may help you navigate the changes, & maybe dispel some myths surrounding this topic. Here we go!
- Things are going to take longer. At least initially. On the surface, there is the concern about the appropriate wait periods now required & how that may extend the contract timelines. That is true, but there is a bit more to it than that. Our business is filled with “behind the scenes” angels that seem to perform miracles daily to get our transactions closed. One reason they are able to do this is that they have become fast experts in repetitive tasks…loan processing, closings, compliance, title functions, etc. They are quick, & they can perform multiple tasks at the same time. Now however, all the familiar forms & processes are a bit different. Much like driving a brand new car on day one, familiarity just isn’t there yet (where’s those windshield wipers?). It is very important to be transparent with buyers & sellers, & not allow unrealistic expectations to be set with regard to timelines.
- Although the borrower has a right to view their Closing Disclosure three business days prior to closing, very few changes will require a “reset”, adding another three days to the wait period. In fact, this guidance is clear, & there are only three things that could potentially change on a loan that would require a new three day wait period:
- The APR (Annual Percentage Rate) on a loan increases by more than 1/8% on a fixed rate loan or more than 1/4% on an ARM loan. This happens very rarely when working with a reputable lender.
- A basic loan product changes. For instance, changing from a 30 to a 15 year loan, or from a fixed to an ARM loan. Although such a change requires a new three day wait period, I would say that even prior to the new guidance, such a change would have cost a borrower three days regardless.
- A prepayment penalty is added. Frankly, in this era of “Qualified Mortgage” (QM) requirements, it will probably be quite some time before any of us see a prepayment penalty on a loan, much less one that is “added” near the end of a transaction.
- Know your business partners & choose carefully! Managing transactions that are subject to TRID guidance will require close coordination between real estate professionals, lenders, & title companies. Before a Closing Disclosure can be issued, the lender & title company must exercise due diligence in ensuring that all of the numbers & costs are correct. There will be substantial correspondence going on in preparation of this Closing Disclosure. If you are letting a buyer choose their lender without guidance from yourself as a real estate professional, I would expect some transaction turbulence, especially in these first few months.
- Buyers that are not “tech savvy” will feel the “timeline” pain the most. The reason behind this is pretty straightforward. As a lender, if we can obtain acknowledgement electronically that a borrower has received a closing disclosure, then the three day clock starts at the point of acknowledgement. If the borrower cannot or is unwilling to receive documents electronically, then an additional three days is added! This is based on the assumption that we must then MAIL out a borrower’s Closing Disclosure, & that it will take three days to arrive.
- As a lender, we cannot order an appraisal until a buyer/borrower signs a formal “Intent to Proceed”. Once again, the tech savvy client will have an edge here, as they can provide this “Intent” by electronically signing the appropriate form. The days where an agent could call me and say “hey, I’m sending you a purchase agreement, let’s get the appraisal going!” are long gone.
Hopefully this discussion will help prepare ourselves & our buyers for what is to come. We’ve got a little more time to prep folks appropriately, as the first round of TRID loans will not close until the end of October, at best. In the end, we have an opportunity to truly assist customers through some uncharted territory here. Let’s keep our heads up, keep the lines of communication open, & before we know it, this will all feel normal! At least I think it will. Happy selling!
Ross Mortgage Corporation
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