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The Scorecard On The New Real Estate Trid Regulations – it’s The End Of The World As We Knew It (and I Feel Fine)
In November 2013, the Consumer Financial Protection Bureau (CFPB) integrated the Real Estate Settlement Procedures Act (RESPA) and Truth in Lending Act (TILA) disclosures and regulations. These new regulations sent shock waves throughout the real estate industry. Any transaction involving a mortgage will use new CFPB disclosure forms, which are radically different from the old HUD-1 forms which the real estate industry had used for many, many years. The new TRID (TILA-RESPA Integrated Disclosure) rules and forms took effect on October 3, 2015. These rules were greeted with audible groans from all the players in the real estate industry, most vocally from the realtors, mortgage lenders and title insurers. After all, they exclaimed, we were just getting acclimated to the 2010 modifications to the 2010 HUD-1 procedures. The HUD-1 was like Linus’ security blanket – it was all we knew and it felt good. The industry players let out a collective voice of panic when they found out that they were losing their security blanket, the warm, comfortable HUD-1.
It turns out that their fears were unfounded. Franklin Delano Roosevelt once said, “the only thing we have to fear is fear itself.” Those words ring true with the implementation of TRID. To be fair, the real estate industry’s fear was founded on two fronts: 1) everyone’s natural fear of change and 2) the rather poor job of communicating what exactly the final product of TRID would be by both HUD and the CFPB. Both of these agencies gave the concerned real estate industry imperial-like directives that contained little substantive information. It was like my father used to say: “like it or lump it.” That was hardly solace to an industry that felt that the industry was fine as it was and that more governmental intervention was not the answer to any perceived problems in the industry.
Nonetheless, on October 3, 2015, the new regulations went into effect. I am happy to report that, in this instance, I believe the government actually helped clarify and simplify the real estate settlement process. Here’s why:
Vastly Improved Communications. I have been involved with over 15,000 real estate settlements since 1987, going back to the day when the settlement statements were prepared by hand. As the lending products became more varied and the mortgage instruments themselves became securitized, the settlement process became more and more chaotic. Buyers often did not know if their mortgage was approved until the day of closing, due to the complexity of the underwriting process. The result of this uncertainty was that buyers often did not know exactly how much money they had to bring to closing, which is kind of important to the stressed buyer purchasing his or her new dream house. Title companies were not getting final numbers from the lenders until the day of closing (sometimes as little as an hour from the actual closing time), causing a frantic scurrying of manpower to complete the preliminary HUD-1 and download and print out the mortgage documents. Realtors were frustrated as the title companies could not give definitive answers to the basic question: “are we closing today?” Settlements were routinely rescheduled, causing very real concern to both buyers and sellers. Funding by wire transfer on the day of settlement was also frequently delayed. In other words, it was a frenetically unstable process that left everyone stressed.
In the months since the implementation of TRID, I am pleased to report that the process has become much smoother. The new regulations require that the Closing Disclosure, or “CD”, must be completed and transmitted to the buyer/borrower three business days prior to the closing date. Buyer/borrowers are cleared to close and know their bottom line three days before the closing date, providing the buyer/borrower with one of the most important things in the process: the amount of money needed for closing. TRID forces the lender, realtor, and title company to communicate with each other, making the process more efficient for the buyer/borrower. The buyer/borrower is fully prepared for closing, knowing the amount of cash needed to close and all the important details of the loan transaction, such as his interest rate, payment amount including any escrows for taxes and insurance, total amount due over the life of the mortgage and if and when that payment will change.
Smoother Closings. Closings once again are back to taking less than an hour, with most closings completed in about 45 minutes. No more are they hours-long events, waiting for final papers and wired funds while borrowers and sellers nervously wonder if their closing will go through. This is a direct result of the improved communications prior to the closing between the real estate, lending, and title professionals. The closing has become akin to a graduation ceremony, where all the hard work has been done beforehand and the ceremony is a perfunctory ritual.
All in all, the trepidation with which these changes were greeted was not at all surprising, given that governmental regulation rarely tends to make things easier and smoother. However, this time the governmental regulatory agencies got it right.