Back-story: New mortgage disclosure rules could tank the real estate market

photo credit: cursedsenses

As a nation, we have seen firsthand the catastrophic effects of improper mortgage disclosures on the real estate market. While the recovery from the 2008 financial crisis has certainly been more of a marathon than a sprint, the new Consumer Financial Protection Bureau’s TILA-RESPA Integrated Disclosures (TRID) may bring recovery to a standstill.

The new rules, which go into effect October 3, 2015, integrate the Real Estate Settlement Procedures Act and the Truth in Lending Act. They wiped out good-faith estimates and the HUD-1 settlement form. The two new forms use “clear language and are designed to make it easier for consumers to locate key information,” as interest rates, monthly payments, and closing costs, according to the “Bureau”.

The long road to the finish line

While they do have their benefits, it is undeniable TRID will inherently slow down closings. The longer closing times will stem from new waiting periods built into the closing process, including:

• A new closing disclosure document that must be provided to the consumer no less than three days before closing.
• If the closing disclosure document is mailed or emailed, the lender must wait three days to ensure receipt.
• Seven day waiting period for a buyer to acknowledge any change greater than 0.125 of a percent to the annual percentage rate.
• Lenders, rather than settlement or title companies, will now handle providing closing disclosure documents to borrowers, meaning that lenders will request additional information directly from the borrower, potentially causing confusion and delays.

Playing the “wait-and-see” game to avoid penalties

Beyond the built-in waiting periods, the lack of guidance from the CFPB will only exacerbate the delays.  “It’s pretty easy to hear when you talk to people in the industry the frustration they have that there are a lot of gray areas in the new rules,” said Gavin Ales, DocMagic Inc.’s chief compliance officer. “There’s a perception in the industry that the CFPB is filling out the gray areas through enforcement actions.” The threat of enforcement actions has led many to believe that lenders will, as The Daily Business Review put it, “adopt a wait-and-see attitude” during the rollout.  

While we can’t be sure of the exact effect that the rollout will have, it’s easy to see how less lending and slow closings could drown a real estate market that has just barely managed to get its head finally above water.