Question: Cynthia, what are some things agents need to consider to prepare for the upcoming changes (TRID) in October?
Answer: While lenders, escrow and title companies have spent the last many months preparing for the big changes (originally to take place in August, but now delayed to 10/3/15), in all reality, there is going to be an adjustment period as things get worked out in the industry. These are sweeping changes, and my experience is that each lender will have their own “spin” on how to implement these changes.
What does this mean for you, as a Realtor, to best serve your client’s needs? Here are some of the matters to keep in mind:
- The industry will need time to adjust to the new rules.
Escrow will need to work with the lender and title company, to provide very accurate numbers to enable the lender to issue their disclosure documents. As you may have heard, there is a strict set of guidelines in terms of the timing of certain disclosures. From past experience (for instance, the 2010 HUD changes), it takes time for the industry to interpret and enforce sweeping changes. Early in a transaction, title will be required to provide numbers based on specific lender requirements, something that would historically be done very close to closing. This is going to require a new level of communication between the lender (stating their specific requirements, down to the number of pages in documents to be recording, documents that will not yet exist!), escrow and title.
The trend has been, and will continue, that in a set of loan documents, extensive and specific requirements are given to escrow. These requirements will vary from lender to lender, even from loan program to loan program. When escrow gets a set of loan documents for the buyer to sign, or any request for processing items, we need to take the time to read the instructions and properly respond. Taking this additional time when documents are received, will help avoid funding/closing delays, or the dreaded REDISCLOSURE time lines. Bottom line: please give your escrow officer time to do our job. We need a sufficient review period with a set of loan documents BEFORE they are signed by the buyer.
- Closing cost credits / credits in lieu of repairs – It’s a whole new world!
It is common practice for buyers and sellers to be in negotiations over requested repairs, late into the escrow period. The vast majority of loan programs do NOT allow buyers to receive credits for repairs or deficiencies in the property, and for this reason, such credits are given for closing costs. This can cause a variety of problems, and because of the new stricter requirements for ACCURATE disclosure MUCH SOONER prior to loan documents and closing, this is going to become more problematic.
Some of the problems with closing cost credits include:
- Credits given after the initial figures are already given to the lender, are EXTREMELY LIKELY to cause delays due to re-disclosure requirements. Remember, an accurate Closing Disclosure Statement must be provided to a buyer several days BEFORE loan documents can be drawn. Changes can require a whole new waiting period.
- Credits cannot exceed buyer’s ACTUAL closing costs. For instance, if the seller agrees to credit the buyer $5,000.00, and their closing costs are only $4,500.00, the buyer has to forgo $500.00 of credit, which never makes a buyer happy. Keep in mind, if the buyer was already given a closing cost credit in the original offer, the new credit will be added to that credit, and the entire seller concessions will be factored in determining if the lender will allow the full credit.
- Credits can and often do require amended appraisals be issued, so that the new concession by the seller be reflected in the appraisal itself. The timeframe for obtaining an amended appraisal is something the lender may have little control over, as the appraiser is an independent third party.
- Stricter CFPB (Consumer Financial Protection Bureau) compliance requirements by lenders.
- Lenders will be scrutinizing the vendors they work with (escrow companies, title companies, notary publics, etc.) to determine compliance with the laws regarding protecting the consumer’s financial information. Look for measures such as encrypted emails to become the norm.
- Lenders will in some cases bar certain service providers (we have already seen a closing in which the title company had to be switched in order to get loan documents), for violations of CFPB, or failure to have evidence of compliance.
In your real estate practice, the team you choose to work with has always been important in meeting the needs of your clients. Choose service providers who do their job well, and we (lender, title, escrow, etc.) will make you look good, no matter the changes to our industry.