Vail Daily column: Homeowners need to understand new mortgage rules
The home mortgage industry is absorbing the impact of the biggest regulatory reform in decades, and it is going to take a concerted effort of lenders, Realtors and homeowners to work through it. All loan applications or inquiries after Oct. 3 are impacted. If you applied last week you are spared from all of this.
The new rules are known as TRID, which stands for the Truth In Lending Real Estate Settlement Practices Integrated Disclosure Act. It is part of the Dodd Frank Wall Street Reform Act, and is enforced by the Consumer Finance Protection Bureau, which is a agency with a $500 million annual budget that is, by design, unaccountable for its actions to the President and Congress. I suppose that at least lets Congress off the hook for this disaster, and perhaps it was that way intentionally.
TRID requires two documents be given to the borrower. The first is a loan estimate, which is sent to the borrower once the lender has six bits of information, regardless of the borrowers stated intent to move forward. If the lender has the Social Security number, property address, income, loan amount, estimated value and income the lender is obligated to send a loan estimate to the borrower. The law does not address what to do if the borrower is presented with say three options and makes no indication which option he might favor. As a result, lenders are going to be sending out about 20 loan estimates for every loan app they actually end up taking and many borrowers are going to be hopelessly overwhelmed and ask, “Why did you bother to send it.” The second is a closing disclosure which must be presented to the borrower four business days before closing, which means if the Monday before closing is a holiday the disclosure must be delivered on Friday for a Thursday closing. What is more important is that to meet this deadline is if the closing disclosure is emailed on Friday, the borrower must electronically acknowledge receipt on Friday. If the documents are mailed via the PO to the borrower there is an additional three business days waiting period once they are mailed before the real three business day waiting period starts which means they would have to be mailed out the previous Monday meaning they have to go out 11 days before closing. I actually do know people who refuse to get any important business documents by e-mail and insist I mail them regular mail.
If the docs are emailed, and the borrower does not open them on Friday because he is at the ER with his critically ill child and opens them the following Monday then the closing can’t happen until the day after it was scheduled (Friday) to allow for the borrower to have three business days to review the documents, which would quite possibly require the closing numbers to be revised which means they would have to be re-disclosed on Tuesday. Assuming the borrower opens his email that day and acknowledges the disclosures then the closing could happen on the following Monday which is four days after the original closing date. Now in the meantime, if the seller has a purchase lined up and can’t close on time his earnest money may be endangered, and he also has the option of rescinding the contract and keeping the earnest money. If there is a chain of back to back closings in one day between buyers and sellers up and down the line and the above scenarios play out in any of the transactions all the transactions could be at risk of not closing.
There is zero tolerance for honest mistakes made by honest people that impact no one in any material financial way. A email containing closing numbers that did not get opened because it went to spam would trigger the above chain of events, as could mistyping a email address.
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Further, if any one of several line items on the closing documents were off by even $1 and it had not been re-disclosed earlier to the borrower that, for example, a credit report cost $66 instead of $65 there could be up to 11 days of delays while the borrower is given the right to ponder if he should spend that extra dollar, and he has no right to waive the waiting period even if he might lose his earnest money. The lender is generally not allowed to just forget to charge the extra dollar, not is he allowed to regularly over disclose estimated costs to build in a cushion.
In addition, there may be situations where closings are delayed by a last minute adjustment to the sales price to resolve inspection items. This could trigger up to an 11-plus day delay in closing depending on timing.
The solution here is for Realtors and buyers to ask their attorney to draft language in the contract that if a closing is delayed due to a re-disclosure under TRID that the closing date shall be re-scheduled to accommodate the required waiting period. In addition, borrowers need to fully understand the urgency of responding immediately to any communication from their lenders or title companies. Closing dates should be scheduled at least 45-days out as opposed to the traditional 30 days.
Unfortunately, many local Realtors I’ve talked to seem to think that the burden for avoiding delayed closings should rest entirely with the lender and title company. That is not the case, and everyone has to pitch in and work hard and remain flexible, it’s a whole new world out there.
Chris Neuswanger is a mortgage loan originator with Macro Financial Group in Avon and may be reached at 970-748-0342. He welcomes mortgage related inquiries from readers. His blog and web site is http://www.mtnmortgageguy.com