Closing Table Woes: ‘TRID’ promotes greater transparency, but creates more arduous process
A dozen years ago, the housing industry was sailing along at ever-increasing levels, and the country’s economy seemed to be growing without an end in sight. Then in early 2006, prices peaked before starting a precipitous slide. By 2008, Standard & Poor’s Case-Shiller home price index reported the largest price drop in its history. When the real estate bubble burst, many home purchasers were left underwater as their homes were not worth what they owed on them. Increased foreclosure rates among U.S. homeowners led to a crisis in the mortgage, credit, hedge fund and foreign bank markets.
In retrospect, it’s obvious that in counting on ever-escalating home values, the housing industry and mortgage industry had become lax in both regulations and background checks. It all led to a number of changes in the industry. One of the results was a series of new rules and procedures called the TRID regulations (Truth in Lending Act/Real Estate Settlement Procedures Act, formerly known as TILA/RESPA), meant to promote greater transparency in the mortgage process. The TRID regulations mandate full disclosure of all numbers three days prior to closing.
Originally set to begin Aug. 1 of last year, the start date for the new regulations was moved back to Oct. 1 after an outcry about it being in the midst of the busy season.
“There was a lot of angst over time and (possible) complications,” said Kim Pontius, the executive vice president of the Traverse Area Association of Realtors.
He said the organization did its best to inform members of the legislation prior to it being instituted. “Now people have to deal with it. It’s a must-do.”
Bob Brick is not a fan. The RE/MAX Realtor sees the regulations as slowing down closings and occasionally leading to deals not happening. “It has put a lot more stress into the closings,” he said. “There’s no common sense. And it’s law.”
If there is a last-minute change, the regulations mean that the selling party isn’t getting their money and the buying party isn’t getting the keys. For deals where possession was to take place upon closing, any complications can be problematic. For those scheduled to sell a property and purchase another the same day, a closing delay on the first deal can completely derail the proceedings.
“It’s definitely taking longer,” Brick continued. “It’s an annoyance to the lenders. There’s a lot of tension between buyers and sellers. When you have any last-minute changes, it’s pushed back (as much as) another 10 days. I’m sure it’s protecting somebody, but I’m not sure who.”
Carole Simon, a Realtor with Real Estate One, said she is getting used to what she calls “the new normal.” Though not as vociferous as Brick, she’s hoping that the pendulum will swing back slightly to center and make things easier for all concerned. “It’s slowed things down by about a week. I’m counseling my clients to anticipate (that). Greater transparency is actually a good thing for consumers.” On the other hand, she said, the new regulations have made the process more arduous. “It can get extra sticky. I have to book extra time.”
Brick agreed that getting all the numbers ahead of time is beneficial.
“Everybody would prefer it,” he said, but noted that preliminary documents can be “99 percent accurate.” He argues that now, something as small as a $20 assessment fee that wasn’t in the original documents can delay or scuttle the deal, whereas before those kinds of details could be addressed at the closing table.
Fewer Surprises at the Closing Table
Bill Holmes sees the positives. The head of Front Street Mortgage says the regulations have meant fewer surprises for home buyers.
“For the consumer it’s good. They get the numbers up front,” he said. While he admits it took longer for mortgages to close after the regulations went into effect than before, he said it has leveled off, from 45 to 60 days to closer to 30 to 45.
His counterpart at Traverse City State Bank, Gregory Quick, tends to agree. “It raised some challenges. I think most lenders have experienced some delays, although the delays have subsided somewhat.” He said the objective was to make things less opaque, and the forms now being used are actually an improvement.
“The overall intent was to educate consumers and make sure they have the opportunity to review things,” said Quick, who heads the mortgage department at TCSB. He said that’s evident in the catch phrase the industry has used to promote the regulations: “Know before you owe.”
“Like any change, it took time to get our arms around it,” said Jim Hills of Honor Bank. The assistant vice president and mortgage lender said the TRID regulations put the onus on the lender to get the documentation together, as opposed to the title company. “You’ve got to have all your ducks in a row. I think ultimately it’s going pretty smoothly.”
Rob Serbin isn’t so sure. “It’s delayed things for me more than once,” said the owner of Serbin Real Estate in Glen Arbor. “Lenders say they need 45 days because of the new regulations. Even then they still bog down.”
Serbin said over Memorial Day, a local lender had 28 requests for closings in a three-day period, and was unable to take care of all the closings until after the holiday.
“The process is more time-consuming,” agreed Rick Lovell, “but it’s a better product.”
Lovell, the escrow manager at Talon Group Title Agency, said it has forced lenders to be more responsible and accountable. There are now more disclosures, and hence fewer surprises.
“We’ve found the consumer is better informed,” said Lovell.
Like Holmes, Lovell said when the regulations first went into effect, the time needed for closing on a property was initially as much as twice as long as prior to the regulations. It is now getting better. “There’s always a learning curve,” he said. “We knew it was going to be a big change for everyone.”
“In retrospect, it’s not as bad as we’d thought,” said Holmes.