On Oct. 3, new mortgage disclosure forms were rolled out. In the future, borrowers will receive two new disclosures: the Loan Estimate, which outlines the terms and projected closing costs, and the Closing Disclosure, which will be received at least three business days prior to the loan closing.
The Consumer Financial Protection Bureau (CFPB), the powerful federal regulatory agency, created the new disclosure forms to make the loan process easier for borrowers to understand.
But for the lending industry and all the other parties involved in a real estate transaction, gearing up for the switch is a monumental undertaking.
Huge paradigm shift
“This is the largest paradigm shift that Realtors will see in their careers,” said Bill Burding, executive vice president and general counsel at Orange Coast Title Company in Santa Ana, California.
“The Dodd-Frank Act is the largest bill of its kind in our lifetime since when RESPA was passed in 1974. We are going to be working in a whole new paradigm. We are going to be working with new words. We’re going to be using words that six months ago you never heard before. It’s a huge paradigm shift. This is here to stay. It’s the last major sea change in our careers.”
The new sheriff in town
Burding said the CFPB is a powerful federal agency. Created as part of Dodd-Frank legislation in July 2010, the CFPB is unique among Washington bureaucracies. Funded by the Federal Reserve, the bureau operates independently of Congress, with no Congressional oversight.
It is run by a powerful single director appointed by the president for a five-year term and removable only for cause. It has an annual budget of $550 million that is drawn directly from the Fed, rather than appropriated by Congress.
It writes rules, conducts exams, enforces laws, answers complaints, provides research and promotes consumers’ financial education. It can fine companies by hundreds of millions of dollars, and there is no appeal mechanism.
“My best guess is that there is going to be a significant amount of fallout in agents that are no longer going to be in this industry a year from now,” said Burding, who is on the Board of Governors of the American Land Title Association. “That’s because they are not going to bother to learn these new rules.”
Burding said that under the new TRID rules closing will be 15 to 30 days longer than they are now. And lenders are taking on more responsibility.
“They are putting the responsibility on the lenders,” Burding said. “This is a lender-driven ruling. The banks are struggling with these new rules because they have the liability. Without question the new rules are going to make transaction longer. We have title companies working with new software. We have lenders working with new software. We have an additional 20 people touching the file. But eventually, it will work itself out.”
Mickey Vandenberg, senior vice president and national escrow manager for WFG National Title Insurance Company in Irvine, California, agreed that big changes are coming with the new TRID disclosures.
“In the old world, we all worked in silos,” said Vandenberg, referring to how agents, homebuyers, lenders and title professionals worked in the past.
“Now, with the new TRID rules, everybody needs to communicate together up front. It’s definitely going to be a learning curve for the industry. It’s going to take time to get used to the new TRID world. It’s going to take some time getting use to the new forms.”
In the past, Vandenberg said, attorneys, lenders and title companies worked independently and provided buyers and sellers different documents on different schedules, which made it easy to make last-minute changes.
But under the new system, lenders must provide homebuyers with two new documents, which require lenders to gather all the information from different parties before moving ahead with closings.
Vandenberg and other experts said compliance will present the industry with many challenges.
The new mortgage disclosure forms are part of new financial rules created by the CFPB to fulfill its obligation under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 to simplify and integrate the four different mortgage disclosures currently required under the Truth in Lending Act (TILA) and the Real Estate Settlement Practices Act (RESPA).
The TRID twins
From Oct. 3, 2015, forward, the old TILA and RESPA disclosures will morph into a new offspring — the TRID twins. Other dramatic changes include the elimination of the HUD-1 Settlement and Good Faith Estimate (GFE).
Specifically, the rules amend the TILA and RESPA that have been in place for over 40 years. These two sets of disclosures will be replaced with two new forms:
- The new Loan Estimate — which replaces the Good Faith Estimate and the early Truth in Lending disclosure — that currently must be provided to the consumer within three business days of receipt of a loan application.
- The new Closing Disclosure replaces the Housing and Urban Development (HUD-1) settlement statement and the final TIL statement that must be provided to the consumer at least three business days prior to the loan closing.
The loan estimate combines and replaces the TIL and the disclosures GFE disclosures. Since this document is given at the beginning of a transaction, this will not impact Realtors too much.
Octavio Nuiry is the managing editor of RealtyTrac.