It’s no surprise that a system of rules as complex as TRID (the TILA-RESPA Integrated Disclosure) would lead to confusion. Rumors and myths abound and some have even used the word “hysteria” as the implementation date rapidly approaches. While it will take some time for the industry to be completely comfortable, a look at some of the myths already circulating may help to lower the collective anxiety, at least a bit. Below are some of the myths most heard on the C.A.R. Legal Hot Line.
Myth: “Appraisals will be delayed because of the new rules”
The procedure for ordering an appraisal is essentially the same under the old and new rules with only minor differences. An issue that has appeared in various guises is that lenders won’t order an appraisal until they receive the buyer’s intent to proceed with the loan. This is true. But this has been true since 2010. Currently, lenders are not entitled to charge a buyer for the cost of an appraisal until they receive the buyer’s intent to proceed with the loan.
One difference under the new rules is that lenders will be required to document the buyer’s intent to proceed in writing. For this purpose, some lenders may create their own in-house forms and require buyers to send it in. Buyer’s agent should be aware that the buyer’s call to the lender saying that they wish to proceed with the loan may not be sufficient and that, depending on the lender, the buyer may have to complete the lender’s own form.
Something else that has been true since 2010 is that the Good Faith Estimate and now the Loan Estimate typically cannot be revised for 10 business days, but may be revised after ten business days if the buyer has not confirmed their intent to proceed. In light of this, the Consumer Finance Protection Bureau (CFPB) recommends that the buyer express their intent to proceed within 10 business days after delivery of the Loan Estimate. Once the buyer has confirmed their intent to proceed, then the lender will be bound by the charges in the Loan Estimate with the exception of only a few specific circumstances.
More importantly, it is the buyer who can speed up the appraisal and loan process by selecting a lender early, supplying all the requested documentation to the lender in a timely fashion, and keeping communications with the lender timely.
Myth: “Any change in the Closing Disclosure will reset the waiting period”
This is a myth. Although most last minute changes to the purchase agreement will require a new Closing Disclosure, they typically will not reset the waiting period. In most cases minor changes to the Closing Disclosure should not lead to extended delays. However, you should avoid any last minute changes to the Closing Disclosure if at all possible. A change in the Closing Disclosure will likely require a lender approval. Or, in a worst case scenario, it may require an appraisal review, which of course may significantly delay the closing.
Remember there are only three changes that trigger a new waiting period: 1) the loan type changes (for example, a fixed rate loan is now an adjustable rate); 2) the APR increases above a certain amount (1/8 of a percent for fixed rate loans); and 3) a prepayment penalty is added. This is confirmed in the Consumer Finance Protection Bureau fact sheet.
Myth: “The new forms cannot be separated into seller and buyer Closing Disclosures”
The new rules clearly allow for the possibility of leaving out information from the buyer’s Closing Disclosure so that the seller’s payout information remains confidential and visa-versa. Additionally, there is an optional two-page Closing Disclosure form to be used exclusively for the seller keeping the buyer’s closing information confidential. However, using the seller Closing Disclosure form and leaving out information are the option of the escrow or title company. It is not required.
Not all escrows may be aware of the possibility of keeping certain seller’s information from the buyer or visa-versa. If you would like one of these escrows to generate a modified Closing Disclosure or a separate seller Closing Disclosure then you should encourage the escrow to speak to the lender for clarification of how information may be presented to the buyer and seller.
Myth: “The CFPB is funded out of the penalties and fines it collects”
The CFPB, which wrote and enforces the new TRID rules, gets its money from the Federal Reserve System, up to specific caps set by law. The Fed can’t turn down requests under that cap. Thus, the funding for the CFPB has been called “independent funding.” The caps are fixed at 12% of the Fed’s operating expenses, which presently works out to about $600 million a year. There have been various efforts in Congress to remove the CFPB’s “independent funding” and put the agency under direct Congressional oversight, something which consumer rights organizations have opposed.
Money that the CFPB collects in fines and penalties goes into the “Civil Penalty Fund” which is used to provide some compensation to consumers who were harmed by activities for which the civil penalties were imposed. However, to the extent that these consumers cannot be found, the CFPB may use the money for “consumer education and financial literacy programs.” (See the CFPB’s June 2015 FAQ on the Civil Penalty Fund).
Myth: “Lenders can now require the buyer to use a variety of third party service providers”
This is a myth because it has always been true. Lenders have always been able to designate certain third party service providers that the borrower must use, such as an appraiser. To see this you need look no further than the second page of the Good Faith Estimate itself where the lender must list the services that they require. The form actually says, “We will choose the providers of these services.” The current GFE rules also require the lender to provide a list of identified third-party settlement service providers on a separate piece of paper.
So what has changed under TRID? Not much. It’s probably because the new Loan Estimate form is so extremely clear in requiring the lender to state what services the borrower may shop for and which ones they can’t that people have perceived it as a new requirement. The TRID rules also require, just as current rules do, a separate list of identified third party settlement providers, but the CFPB has created a new “model” form for showing both required and non-required service providers.
Some Reality: “Closings will be delayed”
This may be true even though the CFPB says there will be no delay in closing for just about everybody. The requirement of having to deliver the Closing Disclosure anywhere between three and seven days prior to signing loan docs is a change in the way business is done. Even though a three day disclosure rule has been in place for changes in the APR since 2009, implementation of the new TRID rules will be complex for escrows, title companies, mortgage brokers and lenders. Almost no one expects a smooth implementation. Therefore, there may be delays in the closing process.
Attorneys who work closing with the National Association of Realtors® have recommended as conservative advice to build into your escrows an extra 15 days for closings. If for example, you had expected a 30 day closing, now plan for a 45 day escrow as a precautionary measure. The same attorneys have also said “Breathe easy. The changes will soon become old hat and by January no one will remember the old forms.”
CFPB Issues Real Estate Professional’s Guide to TRIDAcknowledging the central role of real estate professionals in the purchase and sale transaction, and perhaps also acknowledging the anxiety in the real estate community as a whole, the CFPB has issued the Know Before You Owe, Real Estate Professional’s Guide.
The CFPB is providing this Guide to help ensure smooth and on-time closings. A goal we all share! Certainly more guidance and clarity on TRID from the CFPB (they prefer the name “Know Before You Owe”) is going to help dispel the rumors and misinformation that is in the field. Some highlights from the Guide (click on the links below for further information):
- Smooth and on-time closings – Five steps to prepare your clients
- Encourage your clients to think through mortgage choices first.
- Once a property has been identified, encourage your clients to apply for Loan Estimates from multiple lenders.
- Make sure your clients indicate their intent to proceed.
- Be the source of accurate and timely information about the property and the transaction.
- Find out who provides the Closing Disclosure.
- New disclosures streamline the process
- What has and hasn’t changed about the mortgage process – Facts you need to know about the mortgage process
- Preapprovals and pre-qualifications are unchanged by the rule.
- Your clients must indicate their intent to proceed.
- Once your clients indicate their intent to proceed, lenders can charge fees.
- A changed circumstance may mean a revised Loan Estimate or a revised Closing Disclosure.
- Your client must receive the Closing Disclosure at least three business days prior to closing.
- Extra three-day reviews are unlikely.
- Extra three-day reviews are unlikely
- Share CFPB resources with your clients – links to other Know Before You Owe resources
- Your home loan toolkit
- Owning a Home
- Detailed interactive guide to the disclosure forms
As you can see, there is some duplication in the Guide, such as the repeated assurance that additional three-day reviews are unlikely. But at this stage, repetition is clearly warranted. It is going to take some time for the industry to gain confidence in this new process. Sharing the Guide and other factual information such as this Realegal® may help in this very important transition in the real estate industry.