Of the many aftershocks from the 2006-2009 U.S. financial/housing market crash, perhaps none was as jolting to lending and real-estate related professionals as regulatory reforms enacted to help prevent a re occurrence.
Those same modifications are the big push behind new TILA-RESPA Integrated Disclosure (TRID) changes scheduled to take effect on Saturday, October 3, 2015 instead of the August 1 date to “better accommodate the interests of the many consumers and providers.”
The Dodd-Frank Wall Street Reform and Consumer Protection Act was passed in 2010 in direct response to the crisis and covered a variety of lending/financial reforms. It also created a new government agency, the new Consumer Financial Protection Bureau (CFPB).
The CFPB is in charge of both overseeing and fining for violations of Truth in Lending Act (TILA), Real Estate Settlement and Procedures Act (RESPA) and “Dodd-Frank” regulations.
Key Goals and Highlights
CFPB’s basic goals are to standardize mortgage disclosure forms, help consumer awareness, simplify comparison shopping for loans, and eliminate surprises at closing. These are bold and welcome goals, but as with previous government initiatives, compliance will take education, training, attention to the details and some getting used to.
Highlights of TRID changes include:
- Good Faith Estimate (GFE), HUD-1 and Truth In Lending (TIL) Disclosures for typical relocation transactions are being replaced with the two new forms: “Loan Estimate” and “Closing Disclosure” to ensure compliance
- New Cash to Close and loan disclosures should help borrowers understand their obligations
- Closing Disclosure may be prepared by either the lender or settlement agent, although the lender remains ultimately responsible
- Closing Disclosure must be received by borrower at least 3 business days before closing
- Certain loan changes or APR increases may trigger a new 3 day period and delay closing
The three-day mandatory waiting period has generated much discussion. Lenders will have the additional responsibility of providing buyers all anticipated charges with the Closing Disclosure statement – a minimum of three days prior to Loan Consummation. If buyers do not receive it or if there are changes beyond the specifically permitted limits, closing cannot take place until three days after the new Closing Disclosure document is provided. If further changes are made during that three-day period, a new three-day waiting period begins from that point.
The CFPB’s three-day rationale is buyers will then have adequate time to review all information and not be rushed or pressured at the closing table…now called “Loan Consummation”.
What’s the Impact on Relocation?
This three-day waiting period has fueled fears of further closings delays and additional temporary living or household goods storage costs when considering buyer final walk-throughs are traditionally just before or the day of closing and discovered items often need to be negotiated.
Thankfully, the CFPB Director stated the three-day requirement should not interfere with a successful closing and there’s been some serious misunderstanding about what kinds of major changes would cause a delay.
Per the CFPB Director, “The timing of the closing date is not going to change based on any problems you discover with the home on the final walk-through, even matters that may change some of the sales terms or require seller’s credits. Here are the three circumstances that would allow for closing delays:
- any increases to the Annual Percentage Rate (APR) by more than one-eighth of a percent for fixed-rate loans or more than one-fourth of a percent for variable-rate loans,
- the addition of a prepayment penalty, and/or
- a change in the basic loan product, such as moving from a fixed-rate loan to a variable-rate loan.”
The CFPB Director also added a cautionary note: “We recognize that various other things can and do change in the days leading up to the closing, so the rule makes allowances for those ordinary changes without delaying the closing date in ways that neither the buyer nor the seller may be able to accommodate very easily.”
Relocating employees, banks, mortgage, title and closing companies, relocation firms and their clients – all will need to adjust processes, deadlines and expectations according to the new reality. A recently introduced bill, H.R. 2213, calling for a hold-harmless period for TRID-related enforcement actions is still uncertain. If enacted, the bill will prohibit TRID enforcement/penalty actions (the CFPB is funded by penalties they impose) until January 1, 2016.
We see three silver linings to the proposed changes and new deadline:
- The advanced lead-time allows for education and training on the new documents and rules by industry professionals before the ruling goes into effect.
- There should be increased process and financial transparency for all parties and less on-the-fly negotiation, confusion and angst when buying/selling homes.
- NEI and our expert service partners will be here to help clients and relocating families continue to have a seamless, positive experience – even as CFPB regulators continue to finalize all 1,800 (and still growing) new pages of TRID rules.
If the new CFPB regulations work as advertised, it will bring more transparency and clarity to the process for all.