How will TRID affect brokers and agents after October 3rd?
Following years of development and consumer research, thousands of hours of lobbying, one announcement concerning good faith, and one official delay, the Consumer Financial Protection Bureau (CFPB’s) darling child known as the “Know Before You Owe” rule or TILA-RESPA Integrated Disclosure rule “TRID”, is finally here.
The CFPB official compliance manuals have been published and lenders and vendors put on notice. On October 3rd, 2015, the American real estate transaction will finally undertake its most significant changes in the past 35 years. And with no CFPB guarantee of relaxed “good faith” enforcement, the question still remains; whether the industry is ready to handle the impending changes that will literally take effect overnight.
Marketing “TRID Readiness”
Let’s face it, transactions that originate between October 3rd-November 3rd are going to be slow. With lenders dealing with the risk of potential seven figure non-compliance penalties, expect the mortgage industry to be extremely careful as they work towards truly figuring out who they can work with and who they cannot. After all, the entire concept of “vendor management” and the CFPB’s enforcement thereof under TRID, is murky at best.
The term “TRID ready” has spent the summer of 2015 becoming more of a marketing scheme than a standard unit of measurement for vendors’ relative preparedness for the new rules. When a lender is faced with the choice of re-issuing a closing disclosure or absorbing a variance penalty due to a clerical error, don’t be surprised to find yourself in a new three-day waiting period. Until the mortgage industry has this distilled to a science, brokerages should be prepared for longer transactions and tenderfoot lenders whose inexperience could cause delays. Be wary of those lenders whom continue to claim “10-day closings.”
Costs to Increase
Additionally, do not be surprised to see increased costs on Loan Estimates as vendors account for both new variance penalties and the increased cost of compliance management systems. The concept of “padding” has always existed in the ancillary services world, however that practice could become more prevalent as the lenders and vendors guard themselves against costly penalties stemming from inaccurate loan disclosures.
Although the CFPB likely intended the “Know Before You Owe” rule to make closing costs more competitive, the more practical outcome will be for costs to increase. What’s more unclear is whether this trend will continue or diminish as vendors and lenders adapt to their new regulatory environments. However, make no mistake, working with vendors that are ill prepared for TRID could land brokers and their clients in transaction purgatory.
A Premium Placed on Communication
In that same vein, a premium will be placed on communication between brokerages and lenders. Starting October 3rd, no real estate professional should make the assumption that a lender has been apprised of a change to his or her transaction. Brokers must be prepared to share contracts and amendments thereto as soon as possible with lenders.
Moreover, brokerages should also ensure that they have a system in place to ensure that their commissions and other information, is accurately and timely submitted to the lender or other designated agent who is preparing the closing disclosure. With strict timelines in place, the last thing a broker needs is they’re inaccurate or lack of information to be a cog in the wheel.
Embrace the Role of Consumer Advisor
However, the most important change brokers and agents must embrace beginning in October is their increasing role as a consumer advisor. Previous homebuyer experience will be of diminished value as new forms and timelines come into play. And with lenders scrambling to monitor internal and vendor compliance, their priority on consumer education is likely low. This will put an additional demand on agents to be the conduit for educating the consumer about the changes, and managing their expectations, especially with regards to how quickly a home can be financed.
The National Association of REALTORS® (NAR) and the CFPB have worked closely to ensure that real estate professionals are not without the resources to handle this role, as there is now a wealth of resources available on the CFPB’s website. Make sure your brokerage has a plan with regards to educating consumers on the new intricacies of buying a home so client expectations can be managed accordingly.
Impact of October 3rd
While many are justifiably concerned about the implementation of the “Know Before You Owe” rule, the numbers from an NAR member survey indicate that the industry is well prepared for October 3rd.
The results from that inquiry revealed that 80% of surveyed members had undergone some form of training, and 71.2% of those same members rated their relative level of preparedness as average or better. In addition, the NAR survey revealed that 55.9% of REALTORS® plan to change their purchase agreements to reflect a longer timeline, while 31.2% will add contingencies to the contract. With contracts changing, organizations must ensure they are familiar with those alterations, and that they are using the correct contract come October 3rd.
It seems that October 3rd may just be another day for real estate professionals. Time will tell.