New Closing Docs – A Problem this Summer?

REALTORS ® are familiar with the many documents that consumers see at closing.  In an effort to streamline the documentation and to provide important consumer protections, the Consumer Financial Protection Bureau will require lenders to implement new closing documents on August 1^st.  These new forms are known as the TILA RESPA Integrated Documentation or TRID.

According to responses from lenders to the 1^st quarter Survey of Mortgage Originators, the vast majority of originators were consuming time and money to comply with the new TRID documentation.  However, 60% indicate that they still have unanswered questions about the new forms and how they impact closings.

With regard to the timing of the TRID implementation, two thirds of respondents indicate that they expect the rules to delay some closings, while an additional 26.7% expect both some delays and for some loans not to close at all.  Only 6.7% expect no impact from the changes.

According to the most recent REALTOR® Confidence Index survey, between February and April of 2015 15% of all transactions experienced financing issues and 26% were delayed.  Thus, delayed closings are a facet of the current market.  Additional closing delays in August due to TRID could impede homebuyers, but a change in affordability would exacerbate the problem.  Mortgage rates climbed in May on European inflation, signs of health in the US economy, and anxiety around the FOMC meeting and impending decision to raise short-term rates.  These same factors are likely to reemerge in the 3^rd quarter as the FOMC will meet again in mid-September and many forecasters expect the economy to improve in the 3^rd quarter.  A sharp rise in rates when closings are delayed could impact home sales.

The CFPB has made efforts to reach lenders and to clarify questions about TRID.  Most recently the CFPB has indicated that it will be “sensitive” to lenders who make a “good faith effort” to comply with the rule for a short period, suggesting a limited grace period for infractions.  While changes to closing documents are unlikely to change an aspiring homeowner’s intentions, a volatile mortgage rate environment could.