Applications for purchase mortgages spiked 27.4 percent for the week ending October 2nd, likely a result from implementation of the new TILA RESPA Integrated Documentation (TRID) closing documents and process also known as the Know Before You Owe rule on October 3rd. Some originators are concerned that the implementation could cause delays and have advised clients to close earlier.
This regulation streamlines many of the current closing docs and includes new features intended to make the consumer more aware of their true financial burden.
The increase in weekly purchase applications was nearly uniform between the conventional and government spaces which rose 27.1 percent and 27.9 percent, respectively. Relative to last year, the increase was even more pronounced at 48.9 percent.
Mortgage rates slipped eight basis points to 3.99 percent from a week earlier and were 31 basis points lower than the same time a year earlier. While the drop in rates may have spurred more refinance business, purchase applications rarely respond this robustly to changes in mortgage rates.
This week’s surge in applications pushed the index to its highest level since the week of May 7th, 2010 when the first-time home buyer tax credit expired, but it likely to be transitory with a decline or choppy pattern in applications in the week or weeks ahead as demand that would have occurred in the future was pulled forward. The new rules may result in longer lock periods and costs for some consumer in order to hold onto low rates as closing times may close. Furthermore, as some lenders may not be fully prepared, those that are prepared may see higher volumes that result in delays.
In the long term, the rule should help to make the process a more transparent process for consumers. Luckily the change was timed for the fall, a slower period, the Consumer financial Protection Bureau has signaled its intention to hold lenders harmless so long as they perform a “best effort” to comply in the near term.
Consumers and Realtors concerned about delays may want to shop around for lenders who are best prepared and can close on time.
Ken Fears is the Manager of Regional Economics and Housing Finance Policy. He focuses on regional and local market trends found in the Local Market Reports and the Market Watch Reports . He also writes on developments in the mortgage industry and foreclosures.