The Real Estate Industry Scrambles to Adapt to New Federal Disclosure Law
- TRID is extending the closing time of real estate transactions.
The process does seem to be improving compared to October as lenders and title companies work out the kinks.
- The complicated federal law that went into effect in October with the ominous name TRID is extending the closing time of real estate transactions, according to a sample of transaction cycles in two Western states, Arizona and Oregon collected by a leading title company.
TRID, which stands for the Truth In Lending Act-Real Estate Settlements and Procedures Act Integrated Disclosures rule and is also called “Know Before You Owe,” is a government initiative to make mortgages more transparent and easier for consumers to understand.
But the change added significant tweaks to the longstanding industry closing process, and Realtors, lenders and title companies are scrambling to adapt to the new rules.
Closings extended because of delays
In Arizona, about 17% of transactions scheduled to close on November 30 were extended into December because of TRID delays, according to research prepared for Inman. Resale transactions are taking anywhere from 45 to 60 days to close as opposed to the average of 30 to 45 days.
“It takes 20 to 25% more time to close these transactions, taking into consideration the coordination of data exchange between the lender and the settlement agents, and the extra added review time” said Pat Stone, CEO of WFG (Williston Financial Group).
He did say the process does seem to be improving compared to October, as lenders and title companies work out the kinks to achieve compliance with the new law.
In Oregon, about 35% of transactions scheduled to close on November 30 were pushed over into December. Resale transactions are taking anywhere from 45 to 50 days to close.
According to Stone, “the workload per TRID resale transaction seems to be about 30% longer because of the increase in communication volume; training with the lenders on what is needed; reading extensive instructions; repetitive data input, coordinating and often re-coordinating signing times; and re-keying information that keeps getting deleted because of ill-prepared technology systems.”
The long-anticipated change to the mortgage process went into effect on October 3.
The law was passed to prevent problems that surfaced during the subprime lending crisis when consumers were seemingly unaware of what they were signing up for with their home loans.
The new law requires new disclosure forms from lenders explaining the loan estimate and loan closing. The Loan Estimate form combines the Good Faith Estimate (GFE) and the Truth in Lending Disclosure into a shorter form that’s supposed to be easier to understand and explains the mortgage loan’s key features, costs and risks at the beginning of the mortgage process.
Under TRID, a lender cannot impose any fee, except a reasonable fee for obtaining a consumer’s credit report. The industry feared that this could take lenders longer to pre-approve home borrowers because of the extra steps.
The Closing Disclosure form combines the final Truth-In-Lending statement and the HUD-1 settlement statement into a shorter form that promises to be easier for the consumer to understand and provides a detailed account of the entire real estate transaction, including terms of the loan, fees and closing costs.
A series of deadlines are imposed on the process to prevent delays including a requirement that lenders provide the Loan Estimate form to consumers within three business days of applying for a loan. The Closing Disclosure form must be provided at least three business days before loan consummation.
According to the National Association of Realtors, if 10% of transactions experience closing issues due to TRID, as many as 40,000 transactions a month are affected by the new rules.