Beginning August 1, 2015, the real estate industry will face new rules which govern how mortgages will be handled. Under the Real Estate Settlement and Procedures Act and the Truth and Lending Act, new procedures and timelines are mandated which could result in closing delays.
The RESPA Integrated Disclosure Rule (TRID) will require advance planning on the part of all those in order to insure timely closings.
What is the TILA-RESPA About?
TILA-RESPA consolidates four existing disclosure forms into two forms:
- The Loan Estimate that must be delivered or placed in the mail no later than the third business day after receiving the consumer's loan application
- The Closing Disclosure that must be provided to the consumer at least three business days prior to consummation.
What transactions does the rule cover?
The rule applies to most closed-end consumer credit transactions secured by real property, but does not apply to:
- Reverse mortgages
- Chattel-dwelling loans
Due to the implementation and compliance costs, the TRID rule has a sweeping impact on the real estate industry. The new procedures may prove to be challenging. The closing disclosure is to be given to the buyer three days prior to closing. Planning ahead will be necessary in order to accommodate the new new rules.
Any changes to the loan product or interest rate once the disclosure has been given to the buyer, could trigger another three-day waiting period. Any other changes requiring lender approval could add even more time to the waiting period.
The Consumer Financial Protection Bureau (CFPB) has indicated sensitivity to industry compliance issues and has suggested that only a major change in loan terms would trigger a new three-day waiting period. However, due to the fact that lenders are liable for the documents and substantial fines may be levied, many lenders are taking a conservative approach as far as last minute changes are concerned. Given the possibility of changes, it would not be unreasonable to plan an additional 15 days for closing.
What Does This All Mean to the Real Estate Licensee?
Obviously, TRID will have a major impact on mortgage lenders and the way they do business. All parties to the real estate transaction will need to be sensitive to the timing issues Lenders, attorneys and title companies will need to work together to prepare the closing documents in a timely fashion.
The real estate licensee, whether representing buyer or seller, will need to educate their clients and cooperate with one another in order to complete the paperwork and have it reviewed by all parties prior to closing. The National Association of Realtors is recommending a seven day cushion prior to closing.
The buyer's agent would want to schedule a preliminary buyer's walk-through well before the closing date so that there will be time to work out any issues prior to closing. It is still a good idea to do a second buyer's walk-through just prior to closing in order to insure that the property is in the condition stipulated in the purchase contract.
Given the possibility of changes, it would not be unreasonable to allow an additional 15 days for closing. If a transaction could be closed in 30 days prior to August 1, assume that it will require 45 days after August 1.
The CFPB has created a resource center on its website that contains compliance guides, integrated disclosure forms, samples, and a series of webinars. The disclosure time line example demonstrates the importance of timing.
Posted on Wed, June 17, 2015
by Mike Fair filed under