The mortgage lending process underwent a major regulatory overhaul in the 4th quarter. NAR Research surveyed its members to gauge the impact of the new regulations and found a modest impact to the market, but significant impact for those settlements that were delayed.
The TILA-RESPA Integrated Documentation (TRID) or Know Before You Owe rules went into effect on October 3rd 2015. The rules are intended to streamline the documentation process and to add protections for consumers. REALTORS® who were surveyed indicated that 10.4 percent of transactions were delayed, but less than 1 percent cancelled. When settlement was delayed, the average delay was 8.8 days.
The share of closings that were delayed and the magnitude of the delay are very similar in scope to those found in an earlier analysis. Typically, a homebuyer locks their mortgage rate 30 days in advance of settlement. Locking the rate insures against fluctuations in the rate, but the buyer must pay for this insurance. Typically, a buyer pays a premium for each 15-day increment added to the base lock (e.g. 45 or 60 day rate lock). Or, if the buyer does not have a long enough rate lock and the settlement takes longer, they may need to pay for a rate extension, which is more expensive than a rate lock. For those home buyers impacted by the TRID-related delays, they may face higher costs due to longer rate locks or extensions. It is unclear whether lenders are absorbing these costs or passing them onto consumers. However, lenders would not absorb the costs of delayed moves and scheduling for both the buyer and seller.
Delays weighed on the market in the 4th quarter, but cancellations are low. As a result, the TRID impact shifted total monthly sales volumes roughly one period. This shift in the aggregate sales volume may mask the impact on impacted borrowers though.