A timely way to ease TRID compliance headaches
Time is money. Time flies. Time waits for no one.
Time is also a problem when you’re trying to meet certain regulatory deadlines. A recent lunchtime conversation with a friend who is a real estate agent made me think of those “time” honored sayings. She was telling me about the challenges her realty firm has faced since enactment of the CFPB’s mortgage protections for consumers. Specifically, it’s often hard to close on a client’s home when something unexpected happens that derails the “Know Before You Owe” timeline.
Helping people know before WE owe (penalties)
The CFPB rule, which took effect in October 2015, was a response to the deceptive practices that came to light when the housing bubble burst. It combined mortgage disclosures established by the Truth-in-Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA) to create he TILA RESPA Integrated Disclosure – what those of us in the business affectionately call “TRID.”
You know things are going to get complicated when the regulators use acronyms to create acronyms! TRID was almost 2,000 pages long and affects every business that touches a residential mortgage – from the Realtors to mortgage lenders, and from title agents to homebuyers.
The “Know Before You Owe (KBYO) portion of TRID requires the lender to deliver the closing disclosure papers – spelling out in detail all the terms of the transaction – to the borrower at least three business days before closing. After that, no significant changes can be made or a whole new review period of three days is required.
Learning from a few “real-life” experiences
Don’t get me wrong, both my friend, Terri, and I think buyers should clearly understand the commitment they’re making before they sign their names. After all, buying a home is one of the biggest purchases consumers make! But meeting that three-business-day deadline is hard for most lenders. If anything occurs that delays the mortgage application process, it can feel like a ticking time bomb.
For example, here are a few stories from Terri:
- To meet the KBYO deadline, the lender had mailed the closing disclosure documents in plenty of time, but they never arrived. In a desperate attempt to still close on the original date, my friend ended up walking the neighborhood and knocking on doors to see if someone had received the papers by mistake. They hadn’t, and the closing was delayed.
- At a walkthrough, Terri and her buyer discovered that the repairs listed in the buyer-seller agreement hadn’t been made. So now, closing was stalled and the disclosure papers had to be updated – costing more delivery fees, another 3-day wait period, loss of income for the credit union and a little consternation for the buyer.
- While everything looked copacetic in the original mortgage docs, the lender had to conduct a final credit check a few days before closing and, you guessed it, the borrower’s credit score had changed. This meant new closing disclosures with modified terms had to be prepared.
- When one of Terri’s clients had a delay in closing the sale of his current home, it had a domino effect, stalling the closing date on the new home. Many unhappy people in this one, not to mention the lender.
Overall, the new TRID rules may be beneficial, but they cause a lot more work for those of us in the industry. One title insurer estimated that 25% of the 250 home loan closings he typically handled in a month were delayed after TRID took effect. That’s in comparison to about 4% that had to be rescheduled in the past! My friend, Terri, says she tries to head off problems by educating buyers to look for the disclosure papers and respond immediately when they receive them. She also checks in with the lender two weeks before closing to ensure that things are on track. But, as we all know, it isn’t always enough.
When closings get derailed, it’s that domino effect that really causes problems. And it’s often the lender who is “blamed” for the delay, even though the company is just complying with regulations. It can really hurt your institution’s brand.
Finding an effective solution
Of course, things are going to happen. There will always be people who are out of town just when they are needed to sign a document. Or a borrower will have trouble verifying the amount of their added income. Any delay that causes the lender to come close to missing that three-day deadline means extra costs – and sometimes, penalties. It’s also a headache for the loan officer, the real estate agent, the title agent, the seller and the buyer.
At Virtual StrongBox, we’ve worked with our clients to find a better process for quickly, securely and inexpensively delivering loan papers when they’re needed. In turn, there’s less stress for the credit union and its members and fewer hassles. We recommend that our clients in the mortgage business streamline the process through a secure document storage and file exchange process that keeps files with sensitive information safely encrypted where lenders can deliver closing disclosure documents instantly to borrowers – anytime, anywhere. Using eSignature to provide electronic delivery confirmation for proof to the CFBP if ever needed, the cost is much less than snail mail or overnight delivery. Plus, problems like those my friend mentioned don’t happen.
Complying with the KBYO regulations can be especially difficult given the many steps to be completed before a loan is ready to close. Delays can lead to additional expense and stress for lenders and borrowers alike. New delivery systems can save time and extra costs by easing the compliance burden – with the added benefits of increased security and instant delivery. As they say, “time is money.”