Lenders Cautious on TRID

On October 3^rd, the new TILA RESAP Integrated Documentation (TRID) will be implemented. Under TRID, the current closing documentation is streamlined and features are added to help consumers better understand their financial commitment. Lenders were asked their impression of the new rules in the latest Survey of Mortgage Originators.  While most expect a small impact, there are changes that could affect your business.

When asked about their efforts to come to compliance with TRID, none of the respondents were ready as of late July, but 100% expected to be compliant by October 3^rd. In preparation for the implementation of TRID, all of the survey respondents had discussed their preparations with their REALTOR® partners.

Similar to today, under TRID originators will have to contend with several timelines for providing consumers with disclosures. REALTORS can help by working with their clients to provide lenders with the required documentation as soon as possible. The three factors that can trigger an issue for lenders just prior to closing are: an increase in the APR of more than 1/8^th, the addition of a prepayment penalty or a change in mortgage product (e.g. 15-year fixed rate mortgage vs. a 30-year FRM). As depicted above, the incidence of these changes within three days of closing was low in 2014. Furthermore, respondents indicated they expect the new rules to result in 9.5% of transactions being delayed and 1.0% being cancelled.

Because failure to comply with the new rules could carry penalties for a lender, understanding when the TRID rules apply is critical. The TRID rules apply once an application is made for a mortgage. Some lenders have voiced concern because the definition of an application was streamlined under TRID and made identical to the definition of a pre-approval letter. The CFPB suggests a means of labeling a pre-approval letter to distinguish it from an application. However, more than a third of respondents in the 2^nd quarter of 2015 indicated that the new TRID rules would affect their willingness to offer pre-approval letters.

Lenders voiced concern about the new TRID rules in the 2^nd quarter Survey of Mortgage Originators.  However, they remain optimistic that the share of originations that will be delayed or canceled will be low.  Of greater concern may be lenders’ reticence to offer pre-approval letters.  To this end, it may behoove REALTORS to seek out multiple sources for pre-approvals until lenders acclimate to the new rules.