The rules have changed when it comes to mortgage settlements in the state of Michigan.
On Oct. 3, the Consumer Financial Protection Bureau mandated new forms and regulations for any party involved in a mortgage settlement, marking the most major regulation change in about 20 years.
The new regulations are commonly referred to as TRID, which stands for TILA-RESPA Integrated Disclosure, said Tom Cronkright, CEO at Grand Rapids-based Sun Title, which provides commercial and residential title insurance and closing services in West Michigan.
“TRID combines four existing disclosures that are required under the Truth In Lending Act of 1968 and the Real Estate Settlement Procedures Act of 1974,” he said.
“The TRID regulations were created under the Dodd Frank Act. The goal behind the new regulations are to provide borrowers with more information about the loan they are obtaining to purchase residential property and to provide such information in advance of them committing themselves to the loan.
“Put simply, Congress wanted borrowers to receive more information about their loan and to have ample time to review the information and ask questions before the closing.”
Cronkright said the changes involve a new form called the Loan Estimate that replaces the Good Faith Estimate and early Truth In Lending disclosure. The Loan Estimate is designed to provide disclosures that will help consumers understand the key features, costs and risks of the mortgage for which they are applying, he said.
Furthermore, leading up to the closing, a new form called the Closing Disclosure replaces the HUD-1 settlement statement and final Truth in Lending disclosure, which must be provided three business days in advance of the closing in an effort to inform consumers regarding all of the final costs in terms of the loan, he said.
“The biggest change is that the borrower must receive the Closing Disclosure three business days before the closing. This will impact not only the timing of real estate closings but also how real estate agents, lenders and title companies communicate and interact with one another during the transaction process,” he said.
“We anticipate this will add another 10 to 15 days to residential real estate transactions involving a mortgage and will require better communication between all parties involved.”
So what does this mean for West Michigan’s buyers and sellers? It puts West Michigan in a unique position from a real estate perspective, Cronkright said.
Housing inventory remains at historic lows, and low interest rates provide a tremendous amount of buying power for buyers, Cronkright said. In most markets, houses are selling within days of being listed on the MLS and often for more than the original asking price. The practical impact TRID will have on buyers and sellers is it may take a bit more time to close transactions and will require further engagement by buyers and sellers during the process, he said.
Cronkright said he doesn’t anticipate a large financial impact, although he acknowledged there may be a small increase in the borrower’s final mortgage rate, as they will now have to lock in their loan for 45 or 60 days rather than the typical 30 days.
The only other impact is the additional time it will take to close transactions. The key is allowing enough time in the transaction to absorb the new disclosure timing requirements and still meet the closing deadline set forth in the purchase agreement as negotiated by the parties, he said.
“We think (the new regulations are) a great thing. Borrowers should be very well informed leading up to the closing on the key features and obligations of the loan that they are obtaining to buy their property. I think once the industry gets through the next few months of adjustment, we’ll all look back and say it was certainly a good thing,” he said.
“I think TRID is a further continuation of the regulations on the financial and lending industries found in the Dodd Frank Act. In spirit it's meant to promote more of a free market environment to empower consumers to shop for lending services and the services of other providers that are integral to the real estate transaction process such as home inspections, title, surveying and other similar companies.”
The CFPB will enforce trade compliance, and the fines for noncompliance are very steep, he said. The important thing for buyers and sellers is to align themselves with real estate professionals and counsel that understand the timelines and requirements of TRID.
“The regulations were initially scheduled to go into effect on Saturday, Aug. 1, and early summer the CFPB announced a delay of the implementation until Oct. 3,” Cronkright said.
“For that reason, we at Sun Title began preparing for changes early this year and began communicating and training as many lenders and real estate agents as possible on the regulations and the impact they will have on their day-to-day lives as they process real estate transactions that are subject to regulations. In total, we’ve trained nearly 1,000 people in the last three months.”