TRID: Triumph or Tragedy?

The Truth in Lending and RESPA integrated disclosure, affectionately abbreviated as TRID, is now the official “Rule of the Land”.  Effective October 3rd (actually TODAY because October 3rd was a Saturday), new rules come into effect that will change the way consumers apply for a loan and get financing for a home.  Depending on the fence you stand on will determine whether you see this as triumph or tragedy.

A brief history:  In 2010, the congress passed the Wall Street Reform Act, more frequently referred to as Dodd/Frank, so named after is main sponsors Senators Chris Dodd (D) and Barney Frank (D).  This law created a wholly separate branch of government called the Consumer Financial Protection Bureau a.k.a. the CFPB (www.CFPB.gov).  I say new branch because the CFPB functions independently without congressional oversight, budgetary restraints, or judicial review.  They need only desire money and simply invoice the taxpayers, who then must pay the bill.

Dodd/Frank was a response to the financial crisis of 2008.  Some say the law was draconian while others say it did not go far enough.  The gist of the law and subsequent rules is consumer centrism.  We have entered the age of the consumer, and the consumer is the indisputable king.  The law creates a host of new rules enumerated by the CFPB.  Among these new rules are the Qualified Mortgage, the “Ability to repay”, and now finally TRID.  For a more complete roundup of changes, please see  my previous blog posts, or visit CFPB.gov.

With the implementation of TRID, several forms go away.  The Good Faith Estimate or GFE is now replaced with the Loan Estimate, and the ubiquitous HUD-1 is replaced by the Closing Disclosure.  Furthermore, the closing date is no longer called as such, but rather referred to as “consummation day”.  An easily overlooked, but dramatically important wrinkle is the addition of a 3 day review of the Closing Disclosure prior to closing.  This 3 day review cannot be waived.  Again, it CANNOT be waived.  The closing disclosure must be IN THE HANDS of the consumer 3 business days prior to closing.

The triumphs many see in this law are consumer protections against predatory lending practices, and the liability lenders expose themselves to if they do not comply with CFPB rules.  That said, lenders fearing liability may decline an otherwise suitable borrower for fear of being sued down the road should the borrower fail to pay the money back (known as “Loan Default”).

With TRID, the consumer (read “borrower”) will be offered the opportunity to shop rates on things such as title insurance and homeowners insurance.  In reality, consumers have always been able to shop these items.  It is now a front and center disclosure that they may shop these rates.  One problem is shopping title insurance.  Most do not understand what it is, let alone what it SHOULD cost, and where to begin to shop for rates.  In reality, there are only 2 major insurers to choose from for title insurance.

In many states, title companies run the closing show.  In GA, attorneys run the show.  States where attorneys run the show will see the most changes to the closing (read “consummation”) process.  In GA, the attorney was responsible for the HUD.  With TRID, the responsibility of the HUD (read “Closing Disclosure”) is the responsibility of the lenders.  In fact, on a nationwide scale, the LENDER is now responsible for the creation of the final HUD/Closing Disclosure.  Add the new mandated 3 day review period to the final HUD/Closing disclosure with the LENDERS new responsibilities, and you begin to see some of the tragedies that may befall the real estate industry.

There are several trigger points that will require new HUD/Closing Disclosures to be resent to the borrower.  If one of these triggers are pulled, a lender must re-issue the HUD/Closing Disclosure and a new 3 day period must be observed.  If you are the borrower, this could create problems for you and if you are the seller, this could create problems as well.

Here is a scenario:  Buyer receives a final Closing Disclosure on the home they are purchasing, yet the home they are selling has been delayed.  The delay causes the buyer to lose their loan rate lock, causing a change in the loan rates.  In this case, the lender would have to re-issue a NEW closing disclosure, mandating a new 3 day waiting period and delaying their new home purchase.   This creates a domino effect.  The seller, who was planning on using the proceeds to buy a home, now has their closing delayed, and so on, and so on…

Kudos to the consumer, who is now the center point of the lending process.  Kudos to the lenders, who have moved mountains to get to comply with the new processes.  Kudos to the attorneys, who have moved mountains to accommodate these new changes.  Pitty the poor sellers of the homes these buyers are buying and lenders are lending for.  It is the seller who is in the dark, and considered an after thought, until they become a consumer of money for the purchase of their new home.

An attorney friend of mine who has been a real estate closing attorney since before RESPA was implemented in 1980 said “RESPA took 2 years to settle down once implemented”.  2 years from now, we will know for sure if TRID was a triumph or tragedy.  Until then…hold on as the ride may get a little bumpy!

Hat tip The Professional Wingman for the pix – click HERE to visit.

The Creature from Wall Street – Part 1

Buying or selling a home will change on August 1st, 2015.  This we know.  How it will change remains a great mystery to most.  There is no shortage of information on this topic to be found on the internet for lenders, title companies, and closing attorneys, but for the mere mortal buyers, sellers, and Realtors, there is precious little information and guidance.  A brief summary follows to get us all on the same page.

Back in 2008, the housing crisis began to unfold, which ushered in the “Great Recession” of 2008 – 2012.  At the time, no one knew just how bad things would get.  Each downward dip on the housing roller coaster brought experts out saying “We have reached the bottom!”, only to be confronted with the next downward dip or death spiral.

Senators Chris Dodd (D) and Barney Frank (D) sponsored a bill entitled ‘The Wall Street Reform and Consumer Protection Act”, now simply referred to as Dodd / Frank.  This bill was passed and signed into law by President Obama in 2010, and began sweeping changes to the machine of Wall Street and consumer credit lending.  To monitor all of this, the bill created a committee known as The Consumer Financial Protection Bureau (CFPB), simply referred to as “the Bureau”.  Concisely stated, the Bureau provides oversight to essentially every consumer transaction that involves credit in the United States.  This includes, but is not limited to… credit cards, payday loans, credit unions, FDIC, banking rules, and home mortgages.

REAL ESTATE
This being a real estate centric blog, we will focus on real estate.  Since 2010, the Bureau has enacted reforms in stages.  They began with changes in mortgage underwriting requirements.  Anyone applying for a loan since 2010 has experienced the exacting standards of underwriting.  The Bureau was behind it all.  Then came the concept of a Qualified Mortgage (QM) and Ability to Repay.  In January of 2014, Debt to Income (DTI) ratios were changed, lowering the maximum DTI to 43% of gross income from as high as 55%.  To be fair, banks can lend to borrowers with higher DTI ratios, but not without opening themselves up to enormous liability down the road.

Dodd / Frank is a consumer focused law.  All changes that have occurred thus far have been leading up to the next big shoe to drop, which is the combination of the Real Estate Settlement Procedures Act (RESPA) and the Federal Truth In Lending Act (TILA).  All of this is scheduled to happen on August 1st, 2015.

Elizabeth Kubler-Ross identified a psychological model known as the 5 stages of grief in dealing with catastrophe.  Denial is followed by anger, then the bargaining phase begins, soon after followed by depression, and finally acceptance.  No doubt, Lenders and Closing Attorneys have experienced this as they have learned about the changes headed their way on August 1st, 2015.  With mortgage lending, some banks have thrown in the towel, closing attorneys have decided to stop doing closings – some have taken this opportunity as the catalyst for their retirement.  Others have responded by supercharging their technology buys, investing in new software and training, and look upon this as a change for the better.

Aside from the changes the lending and settlement industries, there are some practical issues no one is considering.  So how does all of this affect the buyer, the seller, and the broker?  How will brokers modify their practices?  How should they prepare?  How will the Seller deal with extended closing cycles, possession transfers, and potential delays?   How will the Buyer handle possession delays.  Exactly what are the changes coming on August 1st, and why do those changes necessitate such radical questions?

We will discuss the answers to those questions in Part II,