Vail Daily column: New rules mean delays for real estate deals
The old adage that if it’s not broken, Washington is sure to come fix it has never been truer come Oct. 3. The feds will be out in force that day tripping over each other to make the fragile housing recovery even more shaky. But they’re from the government and they sure think they’re here to help and protect innocent consumers from said consumers’ apparently feeble minds and spendthrift ways.
My advice to widows and orphans is hide in the cellar and cower under the stairs if the Consumer Finance Protection bureau comes a knocking offering to protect your nest egg. My advice to homebuyers and homeowners if you are planning to get a mortgage is to apply before Oct. 3. You don’t have to close your loan before then, but you need to apply.
Qualifying for a mortgage is not necessarily going to get harder come Oct. 3, but mortgages will get more expensive and take much longer to get, and buying a home with a mortgage and ensuring the safety of your hard earned earnest money will become far more perilous. As to how long it will take to close a refinance or a purchase loan the industry standard has always been 30 days. Buyers and sellers and borrowers who are refinancing have a cold new reality dawning Oct. 3 in that 45 days will become the new norm. The new rules are called TRID for short. That’s easier to remember than the Truth in Lending Integrated Disclosures. Dread would be a better nickname.
In theory, TRID is meant to ensure consumers have a clear understanding of the costs of getting a loan. That’s a good concept. In reality, TRID also assumes consumers apparently don’t know the difference between a penny and a million dollars and they must be saved from their ignorance. There is also zero tolerance for honest mistakes made by honest people that are fully disclosed to the consumer and end up harming no one.
The premise of TRID is that borrowers will be supplied with a binding estimate of loan closing costs at the time of application, and a closing cost disclosure three business days before closing. OK, that sounds fair enough, I’ll admit. But it’s a bit more complex than that.
It is in fact so complex that to explain it fully here would take a full page of this paper, and try as I might I would probably lose you explaining the bizarre ways the bureau wants this to work.
The short version is getting a mortgage loan is going to be a lot more time consuming, require a huge amount of patience and a sense of humor about the bizarre working of government.
If, for example, an honest employee at the title company makes an honest mistake in quoting the amount for title insurance by a penny lower than it should be and that mistake is not discovered until three business days before closing, then the transaction will grind to a halt and the buyer will have to wait three days and contemplate the wisdom of spending a penny he hadn’t been told about. If, in the meantime, the seller becomes impatient and decides he doesn’t have to extend the closing date, then he can declare the buyer in default, keep the earnest money and book two tickets for a weekend in Paris with his mistress. The fact the buyer was forced to give up his earnest money because of a one cent mistake made by an otherwise honest person is of no matter to the Consumer Finance Protection bureau. They have deemed it is better to contemplate a penny and lose your earnest money than it is to mindlessly spend a penny.
Also, let’s say a week before closing there was a wildfire in Eagle County and several homes burned and the lender demanded to delay the closing so that an independent third party (usually an appraiser) would verify the house was still standing. The appraiser charges $100 for the deal, but the report doesn’t come in until two days before the closing deadline. In this case, the borrower’s closing costs changed by $100 and the law requires the closing stop in its tracks and the buyer have three business days to contemplate the wisdom of spending the extra $100. In the interim, the seller can declare the buyer in default and keep his earnest money.
Even if the lender or the title company was willing to absorb the differences in cost, the law will seldom allow that because it would be deemed favoritism and, as such, acts of common decency or courtesy to accommodate a customer are not allowed.
The best approach would be to ask your attorney to craft some language into the contract that if the closing is delayed by a re-disclosure required under TRID that the closing date will automatically be extended to accommodate the situation. In addition, plan 45 days to close and hopefully everything will go as planned.
Chris Neuswanger is a loan originator at Macro Financial Group in Avon and may be reached at 970-748-0342. He welcomes mortgage related inquiries from readers. His blog and a collection of his columns may be found at http://www.mtnmortgageguy.com.