Marshall Park is a real estate broker at Redfin in Virginia who writes an occasional column on the local real estate market.
When the Consumer Financial Protection Bureau (CFPB) last spring rolled out its new “Know Before You Owe” mortgage rules aimed at making settlement documents more understandable for consumers, the mortgage industry was so worried, it persuaded the agency to delay implementation until October.
The main concern back then was that mortgage lenders were not ready to introduce all the new closing documents and procedural changes that the regulations required.
Among the changes is the HUD-1 form has been replaced with a new closing disclosure that is easier for consumers to read and understand. Banks are now required to provide closing disclosures to borrowers three days in advance, instead of mere hours ahead of a closing, so they have more time to review the numbers and ask questions.
The new rules, also known as TRID, have made the banks more cautious. Facing the risk of steep fines for any violations, they are more likely to delay a closing for small hiccups and minor errors on the disclosure. A lender recently told me that the TRID process has been like “walking on a very sticky floor, where every move is much more detailed than ever before.”
Providing more transparency for consumers is great, but change can be difficult. Lenders, title companies and real estate agents fretted about a bumpy transition as all of the parties involved adjusted to the new rules.
TRID has been in action for several months now — long enough to begin seeing the effects. The good news is that the sky did not fall. But there have been some challenges. Here’s what consumers need to know:
• Delays and longer closing periods
Early data from the National Association of Realtors indicates that the average time-to-close on a home rose from 39.5 days in November 2014 to 40.5 days in November 2015. The real estate agents I’ve spoken with have reported some delayed closings, but the overall impact has been minimal so far.
Veteran home buyers know that getting a loan to closing is not always a smooth and stress-free process. Delays happened before TRID, and they happen now. But with banks being more cautious and the new processes, more people are handling the documents.
Thankfully, many lenders were well-prepared for the changes and have been able to continue to close loans within 30 days, no problem. Now, more than ever, it’s important for consumers to select a proven lender they trust. I often advise clients to work with a local lender as they are often more responsive and provide better service than the large national banks. Borrowers may want to ask the lender if they can lock in the rate for longer period in the event closing is deferred.
While a 30-day timeline is typical in this area, we have seen more buyers opting for a 45- or even a 60-day timeline to account for any unexpected hiccups. The decision on a closing timeline is a strategic one. While buyers are smart to play it safe if they are concerned about getting financing, sellers often prefer shorter closing times in a competitive situation. The timeline is a personal and strategic decision that home buyers should discuss with their agent and lender.
• Agents are shut out
One of the biggest challenges real estate agents have encountered has to do with new consumer privacy rules. Agents used to be provided copies of the settlement documents. We could explain the documents to our clients and help check the numbers to ensure everything was correct before closing. Under TRID, agents are now on the outside looking in, sometimes we aren’t able to see the disclosures until we’re sitting with our client at the settlement table.
At the moment, the banks and title companies lack clarity about what they are allowed to share with whom. Some will share the closing disclosure with agents if the clients sign a form stating it is okay, but others won’t. In that case, it is up to consumers to proactively share the document with their agent. If consumers fails to do so, it means we can’t catch mistakes that could delay settlement.
Agents play a role in orchestrating the transaction and getting the deal to settlement, but the rules have tied our hands and limited our ability to do our job. Hopefully, the CFPB will provide additional clarity around these rules.
• HUD-1 is gone. Or is it?
The new loan disclosure is intended to replace the HUD-1 Settlement Statement, but the HUD-1 is neither gone nor forgotten. Some mortgage lenders are providing this form alongside the new closing disclosure as a courtesy to consumers who are more familiar with that format.
And there are some down payment and first-time home buyer assistance programs that continue to require a HUD-1 at settlement, including the DC Open Doors program. It remains to be seen if these programs will migrate over to the new closing disclosure with time.
• Moving forward
The roll-out of TRID was a big deal for the banks. While the change hasn’t been without frustration, many lenders have done a great job with the transition.
It’s still early and we’re not out of the woods yet. Unfortunately, we’re hearing that some mortgage lenders may increase their fees to account for the added time and manpower needed to process loans.
There may be impacts that haven’t yet played out, so stay tuned.
Catch up on some of Marshall’s previous columns: