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Buffers for TRID’s Learning Curve

The new Know Before You Owe or “TRID” closing process could help consumers, but it could also create issues for consumers in the short-term. According to the 3rd Quarter Survey of Mortgage Originators, lenders are recommending longer rate locks and are hesitant to extend pre-approval letters in some cases. Lenders and Realtors® are currently working to address these issues while closing sales at a steady clip.

On October 3rd, the new Know Before You Owe disclosure process and rules, also known as the TILA RESPA Integrated Documentation (TRID), were implemented. Under TRID the current closing documentation is streamlined and features are added to help consumers better understand their financial commitment. The new set of rules includes stricter tolerances for changes in fees and introduces new time lines for the process.

When asked their degree of confidence in their own preparations for the new TRID rules, 95.0 percent indicated a score of “3” or better, but only 20.0 percent indicated they were fully confident.

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Because of potential delays under the new process, some lenders are counseling their clients for longer rate locks than the standard 30-day. At the implementation of TRID, 60.0 percent of respondents in this survey recommended the addition of 15 days to the standard rate lock (45 days total), while 25.0 percent recommended no change. The extension of a rate lock would add expense to the transaction. On a $200,000 mortgage, adding 15 or 30 days to the standard 30-day rate lock could garner of a fee of $100 to $300.

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Another potential issue is reluctance on the part of some lenders to offer pre-approval letters. 35.0 percent of respondents indicated that the new rules would moderately affect their willingness to extend pre-approval letters, while 5.0 percent indicated the effect would be significant. Originators’ reluctance arises from two issues: misconceptions about the new definition of an application (versus a pre-approval), which triggers disclosures under TRID, and the prohibition of lenders from requiring information like income verification that would be used in an application for a pre-approval. The lending industry is actively discussing and seeking clarification and consensus on these issues.

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The Know Before You Owe rule is just a month old and the industry faces a steep learning curve. Luckily these changes come during the normal seasonal slowdown. Furthermore, anecdotal evidence from Realtors® suggests few issues to date. Lenders’ preventative measures such as longer lock periods and limits extending pre-approvals may ease over time as they gain more clarity on the rule.

 

Ken Fears, Director, Regional Economics and Housing Finance

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.

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