Tis the Halloween season—what a splendid time for the regulators to scare the Hell out of our industry. The financial media has been out of control spinning yarns about the TRID Apocalypse. Then there are some on the lender side using it as a marketing advantage, and telling everyone that it is “business as usual," and “we are different--still closing in under 30—continue to use 30 day offers.” How can anyone make that claim since not one loan under the new rules has been closed yet? People in general hate change. When it comes, many assume the worst, and wring their hands in despair. The media loves a black cloud and seizes the opportunity to pounce on fresh content and spread the word—usually pointing out what’s wrong with the change, not how to deal with it. In this piece, I’m going to briefly break down what is important, how to deal with it, and how to get it behind us. Complaining expends resources unnecessarily--figuring out new methods to deal with an obstacle improves our best practices—let’s just get on with it—shall we?
Trid gives us two new disclosures—just what we needed, right? But it also eliminates four others—yep, just what we needed. Enter the Loan Estimate (LE) and the Closing Disclosure (CD). The LE replaces both the Good Faith Estimate (GFE) and the initial Truth-In-Lending (TIL) form, while the CD replaces the HUD-1 and the final TIL. Tolerances and timelines are very specific, not subject to interpretation—and final. Real estate transactions going forward can be quite smooth, or a complete disaster—the difference will mostly depend upon your loan originator and their attention to detail—there is, quite literally, no room for error. Let’s go over each of these two new forms and bring you up to speed.
The Loan Estimate:
This almost should be renamed Loan Terms. There is really very little “estimate” on this document. All known fees in relation to a mortgage must be disclosed to the borrower and precision is vital. It is critical that the loan originator not guess at anything. A superior LO will get all title, escrow and transfer tax fees from title in writing before the LE can be drawn up. Fees need to be entered, checked and rechecked before they are disclosed to the borrower. Even the appraisal fee must be perfectly disclosed (zero tolerance) on the LE—not off by a dollar. The appraisal management companies have embraced the changes and now offer a menu for their various products with exact pricing for each. It is incumbent on your loan officer to get all third party fees in writing via email for accuracy and backup. Any other fees that are reasonably expected by the LO must be disclosed (i.e. loan is VA, you must disclose the pest inspection fee—probably a good idea to list the clearance fee as well, since there almost always is one). Origination fees and third party fees that the borrower cannot shop for (appaisal) have zero tolerance. Transfer taxes have zero tolerance and must be disclosed regardless of who pays them. Title and escrow fees have a 10% tolerance, while impounds (accrued interest, taxes and insurance) have no tolerance requirements. The LE can be re-issued in the event of a valid change in circumstances, but the changes allowed are very narrow:
- Change in loan product (i.e. fixed vs. adjustable term) or any changes in the terms of the loan requested by the borrower
- Floating rate that is locked
- APR changes by more than .125%
- Original LE expires—this will relate to lock extensions and will trigger additional timing to get the new LE out and will require a minimum of 4 business days after the borrower is considered in receipt of the new LE until consummation will be allowed. 45 day locks are recommended as standard procedure—at least until lenders get their “rhythm”
- An extraordinary event beyond the control of any interested party or other unexpected event specific to the consumer or transaction
- Information specific to the consumer or transaction that the creditor relied upon when providing the Loan Estimate and that was inaccurate or changed after the disclosures were provided
- New information specific to the consumer or transaction that the creditor did not rely on when providing the Loan Estimate.
In practice, none of this is brain surgery. It’s simply data entry, but with no room for a screw up. Only the detail-oriented will survive.
Next is delivery and acknowledgement by the borrower. The LE must be delivered to the borrower within 3 days of the application date and must be acknowledge by the borrower with intent to proceed before any more work will be done on the loan. This is where there will be large differences between different lenders and timing delays can occur. Under the “Mailbox Rule” the LE is considered received by the borrower 3 business days after being dropped in the mail (not including Sundays and federal holidays). Hoo ha, a non-streamlined lender can take an application on a Monday, mail it on a Thursday and it will be considered received on the following Monday. That’s a week before the deal can get started and the appraisal ordered—no wonder everyone is up in arms. Here’s a different scenario: an LO with a better process will take an application on a Monday, deliver it electronically on a Monday, receive acknowledgement from the borrower electronically on a Monday and be able to proceed with the loan on a Monday. Sounds a bit better--yes? The appraisal cannot be ordered and paid for until the borrower is presumed to have received the LE. This can be quick and easy—or not. Some lenders/banks will be using the Mailbox Rule and others will adopt a much more efficient electronic delivery/acknowledgement method. Both are acceptable to the regulators under the new TRID rules. Large institutions and banks have stated they will be using the Mailbox Rule—understandable due to their size and chances of making errors using any other means. Most brokers will adopt the faster, electronic delivery method. It’s important that you or your buyers question a prospective loan officer about their process so you know what to expect.
The Closing Disclosure:
This is an interesting document since it replaces the HUD-1 and is issued by the lender, not the escrow officer. Once it’s issued by the lender, that’s it—no revised Loan Estimates will be allowed—what you see is what you get—it is final. It is absolutely critical that any changes to the deal be sent in before this is issued (last minute seller or realtor credits) This bugger is jam packed with “stuff” that will contain not only the name of the LO, but the contact information and licensing information of the listing and selling agents. This will all go into a national database and will be trackable. Take that last part for whatever you think of it, but agents that employ Marketing Service Arrangements and have a lot of transactions with the same LO will stick out and may draw scrutiny—be aware. Other than restating everything on the last LE issued, the big change here is delivery to the borrower. The LE must be received by the borrower no less than 3 business days before consummation of the loan—so the sooner it goes out and is acknowledged by the borrower, the better. Again, most major banks will be using the mailbox rule. Out by Monday, presumed received by Thursday, consummation no sooner than next Tuesday (don’t count Saturday as we do in the mailbox rule since it’s a non-business day for the lender)—quite a delay. Also, the definition of consummation is important—it is not the “closing date” but the date the note is signed by the borrower.
What’s really important here is to start asking different questions. Forget the: “When are docs going to be in title?” routine, and start asking: “When will the Clear-To-Close be issued?” That will be the single most important date to focus on. Once you have that, the rest falls together like clockwork—CTC given, CD is issued and delivered, borrower acknowledges and the 3-day clock for the borrower to sign loan documents starts (Sat, Sun and federal holidays not counted). The delivery and acknowledgement of the CD and loan signing can stretch out for over a week, or it can be delivered and acknowledged in one day, allowing for a signing 3 business days later. Choosing the lenders/brokers that “get it” will make the difference between a mostly normal escrow timeline, and the one that you are terrified of right now.
TRID is a change—a radical one, but once you understand and adapt to it, we can get on with business. The differences in how lenders approach the change will determine if this will drag out an escrow unnecessarily, or be reasonably manageable. Beware of any loan officer claiming to “guarantee” a 30 day close—beware of any loan officer “guaranteeing” anything. This is, and always will be, a best-efforts business. Some just put in more effort than others. Ask not when docs will be in title—ask when the CTC will be issued—that will start the most important timer in the process. Educate your clients about the new rules. Have them ask the important questions about the process and make sure they are dialed in with a lender that has managed to streamline this new work flow. This will ensure that expectations are properly set and managed. Forewarned is forearmed.
Oh, and Happy Halloween…