- As predicted before implementation, TRID appears to have delayed closings.
- Real estate agents and brokers aren't getting access to the Closing Disclosures sent to buyers, and brokerage forms attempting to give agents permission to access the Closing Disclosures are not always up to snuff.
- Still to be determined is the extent to which the CFPB will investigate and prosecute anyone who may have run afoul of the new regulations.
When the real estate industry was preparing for TRID — the new set of disclosure rules outlined by the Consumer Financial Protection Bureau (CFPB) — closing delays were the biggest industry concern.
And although the delays have been widely reported, there’s something else real estate agents and brokers have discovered: They aren’t getting access to the Closing Disclosures sent to buyers, and brokerage forms attempting to give agents permission to access the Closing Disclosures are not always up to snuff, according to the lenders receiving them.
We’re now more than 60 days post-TRID (TILA-RESPA Integrated Disclosures), deep into the new mortgage closing processes. Despite the CFPB requesting that everyone adopt the term “Know Before You Owe” rule instead, TRID has stuck like glue — and it has fundamentally altered the way closings are conducted.
Hiccups, not devastation
“Reaction has been extremely mixed,” said Marx Sterbcow, managing partner in the New Orleans law firm Sterbcow Law Group LLC and a prominent RESPA attorney who led much of the TRID training and education efforts.
“Lenders are all over the place, with no consistent message and way of doing things. Some software systems are working well, but there are some systems out there, particularly on the title and closing side, that have glitches or are completely dysfunctional,” he added. “All of that still has to be fixed.”
“I know of some small banks and credit unions that are not doing much business. But those people who took the time to prepare for TRID, understand all the regulations and worked with their partners to establish expectations seem to be doing OK.”
Access to Closing Disclosure challenged
One main issue for Realtors concerns whether an agent or broker can receive a copy of the Closing Disclosure without written consent by the buyer.
Although TRID does not specifically address which parties may receive the disclosures, due to privacy laws that restrict lenders’ ability to share the Closing Disclosure with agents, most lenders will not provide them to the agent, even if the agent obtains permission from the buyer — after all, lenders bear responsibility for all closing parties’ adherence to all laws.
Realtors are interested in receiving the Closing Disclosure because it contains data they need to input to the multiple listing service (MLS) in order to close the listing.
The American Land Title Association (ALTA), which led many of the cross-industry training efforts in the lead-up to TRID implementation, advised agents that not all information on the Closing Disclosure is necessary for real estate agents to comply with MLS requirements, and said it is encouraging closing agents to consider what information they provide and what the best method of sharing that information may be. In the meantime, “If the Realtor would like a copy of the disclosures, he or she can obtain a copy of them directly from the buyer,” ALTA said.
Some state Realtor associations, including the Texas Association of Realtors and the Louisiana Realtors Association, have created special authorization forms that give buyers and sellers the authority to request that lenders, closing agents and others disclose and furnish a copy of the disclosure forms to brokers or their authorized agents.
The one-page authorization form states, “I hereby authorize you to disclose and furnish a copy of any and all Loan Estimates, Closing Disclosures or other settlement statements provided in relation to the closing of the real estate transaction involving the property, to the above-named broker or broker’s authorized agent.”
Association authorization forms might be ‘woefully insufficient’
But some legal and compliance experts caution that the forms may be inadequate to comply with the Gramm-Leach-Bliley Act’s Privacy Rule requirements concerning the handling of consumer’s nonpublic personal information.
“These forms are woefully insufficient. They are just abysmal,” Sterbcow said. “They don’t tell the borrower exactly what information he is consenting to giving up, or what sort of TILA-RESPA documents they are providing to these various parties. Realtors don’t need some of these documents, like credit records or tax forms.
“The way these forms are written, they could be easily manipulated,” Sterbcow added. “All of the banks and lenders I am talking to have said they will not accept these authorizations. No lender in their right mind would be dumb enough to use these forms, and if a title company gets that form and disseminates it to agents and brokers, that title company will likely get blacklisted and cut off in two seconds.”
Alabama’s form spells it out — and still might not be sufficient
Other state Realtor associations, such as Alabama’s, have put forth more detailed forms that spell out exactly what information will be shared and when.
The form allows consumers to consent to the disclosure of an ALTA Settlement Statement or Closing Disclosure and information that may include the buyer’s loan amount, interest rate, annual percentage rate, monthly payment, the seller’s mortgage and other lien or encumbrance information, property tax and homeowners’ association charges.
The consent form also provides that agents and brokers will use the information for purposes related to the transaction only, and that they must meet all Alabama Real Estate commission record-keeping requirements.
Even so, such forms are “still accepted by lenders on a case-by-case basis,” Sterbcow warned. “Regardless of the form used, some lenders and investors may deem it too much of a risk and have their own internal policies not to produce that information at any and all costs.”
Closing times took a hit
Throughout the TRID preparation process, most agreed that the biggest impact on real estate agents and brokers would be slower closing times.
NAR observed only a slight impact in existing home sales in October, with 5.3 homes sold, about the same figure reported in August and a slight decline from September’s 5.5 million. However, NAR reported that existing home sales fell to 4.8 million in November, a 10.5-percent decrease from October and a 3.8-percent decrease from the same month last year.
Lawrence Yun, NAR’s chief economist, said the primary reason for the decline could be due to the industry’s adjustments to TRID and the need for longer closing times. According to NAR’s Realtors Confidence Index, 47 percent of respondents in November said they are experiencing a longer time to close compared to a year ago, up from 37 percent in October.
“It’s possible the longer timeframes pushed a latter portion of would-be November transactions into December,” Yun said. “As long as closing timeframes don’t rise even further, it’s likely more sales will register to this month’s total, and November’s large dip will be more of an outlier.”
Ellie Mae, whose mortgage management software is used by a large majority of the nation’s small and midsized banks, reported that mortgages took an average of 49 days to close in October, which is only a three-day increase from September, but still the longest closing time seen since February 2013 — so it appears that closings aren’t taking quite as long as most expected.
Patrick Flood, CEO of Supreme Lending, a mortgage lender based in Dallas that uses Ellie Mae’s Encompass system, observed that closing times have not been severely impacted in his market. Supreme Lending closed 31 TRID loans in October in an average of 13 business days, and 300 in November in an average of 17 days.
“There was a tremendous amount of anxiety because either people either did not really understand TRID or know what it was, or they did some of the training and were deathly afraid of it,” Flood said. “The theme was that we are all going to have to move closings back a few weeks, but we have been quick to try to correct the thinking on that.”
“Now that it’s starting to sink in that there is this new process and some lenders can still execute closings in a similar timeframe as they have in the past, Realtors are adapting quickly,” he added. “At the end of the day, the buyers and sellers are our customers, and if they want to get something done in 15 days, it’s our job as service providers to make that happen.”
‘Hold harmless’ or harmed?
Still to be determined is the extent to which anyone may have run afoul of the new regulations, risking a visit from a CFPB investigator. For months prior to TRID implementation, industry trade groups and individual companies urged the CFPB to enact a formal, defined “hold harmless” period for the first few months of the new regime to give everyone time to get comfortable with the new requirements and processes without fear of legal repercussions.
The CFPB declined to set any formal deadlines for such a period, but pledged that it would be “sensitive” to the challenges that TRID initially imposed.
If one anecdotal report on potential TRID violations paints an accurate picture of the problems occurring, the bureau could have a backlog of violations to investigate for some time to come.
Moody’s Investors Services last week released a credit outlook report in which its analysts estimated that several third-party firms found TRID violations in more than 90 percent of the loans they audited. These findings were based on “informal feedback” that Moody’s received in reviews of about 300 loans from a dozen unidentified lenders.
Some of the violations were technical in nature — such as failure to use required hyphens or the same spelling convention for counterparties — but Moody’s said the feedback suggested “that some lenders are having difficulty complying with the rules, a credit negative because it increases the likelihood that loans with compliance violations will be included in future residential mortgage-backed securities pools.” This has resulted in some secondary market investors pulling back from purchasing any loans that may have technical errors, Sterbcow said.
“Fannie Mae said they may release a proposal to potentially buy these ‘scratch-and-dent’ loans due to TRID imperfections, at a cost of 2 percent to 4 percent,” he said. “We don’t know if they are only going to take on technical glitch loans or massive glitch loans. I think they will only take on technical glitch loans. But we don’t know if or when that could take place. It could be eight months from now.”
Moody’s analysts said the number of technical violations should decline in the next few months as everyone gets more comfortable with the changes and make adjustments to their loan origination systems.
Meanwhile, some industry trade groups are still trying to get a legislative workaround to CFPB’s enforcement of TRID. The Homebuyers Assistance Act, or H.R. 3192, would provide for an official hold harmless period until Feb. 1, 2016, for those who make a good-faith effort to comply with TRID. A version of the bill in the Senate is currently attached to other controversial riders associated with the spending bill, so the proposed legislation’s proponents are not very optimistic that a deal can be reached.