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As we all make our final preparations for the post-Trid implementation world beginning October 3rd, lets pause a?moment and reflect upon the positive aspects of this change.
{{crickets}} . . . . . . . . . Just kidding!
Seriously, although there?re a lot of changes to deal with, and that?s always hard for people, TRID is not all necessarily?bad. Here are my top five positive takeaways from TRID.
5.?Process Improvement: TRID necessitated that each of us closely examine our internal work flow and processes?with respect to new disclosure timing and accuracy requirements. While doing this, many of us have actually found ways?to improve. There?s no getting around the additional days for providing and reviewing disclosures that TRID adds to a?transaction timeline. Those additional days don?t all need to be tacked onto the end, do they? There?s an opportunity to?gain some of those days by improving origination and settlement process.
4. Systems upgrade: We?ve all upgraded existing systems or moved to new platforms to do our work. For many of?us it?s the first major new program since the 2009 RESPA reform. No doubt that all of this software is more robust than?what we were using. That leads to more productivity and fewer errors.
3. The new forms: Combining and reengineering the Truth in Lending and GFE/HUD-1 has resulted in forms that?are easier for the consumer to understand. (The convoluted title insurance fee disclosure notwithstanding.) For?example, we always wondered why there was no ?cash to close? on the GFE. Now we have that.
2. Fewer last minute closing delays: Oh, closings will still be delayed. But they?ll be delayed four days before the?scheduled closing, not four hours. If the Closing Disclosure can?t? be made on Monday, that?s when we?ll know that we?can?t close on Friday. While a delay is obviously not what anyone wants, the fallout stands to be less when moving vans?haven?t arrived or left yet.
1. Industry Awareness: I can?t think of another time in my career when Lenders, Realtors? and Title Companies?were as aware of each other?s world as we are right now. The nightmare scenarios that dominated early conversations?about TRID definitely got everyone?s attention. All of us now have a much better understanding of each other?s role in?the settlement process. This awareness will lead to further improvements as electronic sharing of information between?the participants in the transaction becomes increasingly more prevalent.
And I?ll give you a bonus positive takeaway: Next year, 2016, will be a year when we can all focus on just being better at?what we do. No new software. No life changing regulatory initiatives. Just each of us, trying to do our jobs better!
~John Bethell
September, 2015
We?re now less than two months from implementation of the Truth?In?Lending and RESPA integrated?disclosures (TRID). We?ve carefully studied the rule. We?ve carefully considered how this will affect our?processes. We?ve upgraded our software. We?ve tested our software. We?ve waited for a software patch?to fix the bugs. We?ve tested the software again. We?ve started training our team. We?ve breathed a?sigh of relief when the implementation date was pushed back to October 3rd. Rinse . . . repeat.
Clearly, there?re many important things that we all must do to be ready for TRID implementation. But?what is the most important thing? Process changes more than anything else are people changes. Our?teams need to learn new ways of accomplishing the same tasks in order to have a successful closing.?(Remember I stated in June that I refuse to use the word consummation!) So with all the changes, what?is the most important thing that each of our teams need to do? For me, the most important thing for my?team and my clients and especially the buyers and sellers is to change their mental focus from the?closing date to the disclosure date.
In the pre?TRID world, we pick a closing date and everyone in the process works to get their piece of the?transaction done in time for the closing. Frenzied activity takes place in those final 48 hours to enable a?successful closing. Appraisal questions get answered. Credit reports are updated. Underwriter concerns?get addressed. A lot of things happen because we?re targeting a closing date.?We need to start speaking specifically about the disclosure date and not focus on the closing date.
Instead of ?when is it closing?? we need to be asking ?when are we disclosing?? Instead of setting time?lines backwards from the closing date, we need to measure backwards from the disclosure date. When?we review a purchase agreement, we need to circle the disclosure date on the calendar, not the closing?date. If we meet the disclosure date, everything after that will likely happen smoothly and on time. And?after all, that?s the purpose of TRID anyway, isn?t it?
Let?s stop telling the appraiser, the inspector, the title company, the lender or the realtor to get tasks?completed because ?it?s closing two weeks from today.? Let?s tell them to get things done because??we?re disclosing a week from Monday.? It?s a mindset. If we talk in terms of a closing date to our team?or service providers, they need to do a mental calculation as to what that means for their time line and?their action items. If we talk in terms of a disclosure date, we?ve already done the calculation for them.?They don?t have to think about it as much and can get on with meeting that timeframe.
Insert ?disclosure date? in your transaction vocabulary in place of ?closing date.? For me, that?s the?most important thing.
~John Bethell
July 27, 2015
We interrupt our regularly scheduled programing of compliance induced folderol for this important?message: People are actually buying and selling homes! In fact, they are buying and selling homes in?Monroe County at the fastest rate in seven years; a rate that is almost twenty percent better than the?second quarter of last year.
The chart on page 13 shows Monroe County sale transactions by quarter for the last eleven years. This?past quarter is the highest quarter since the third quarter of 2007. That?s thirty-one quarters!
What was going on in 2007? Well, the first iPhone was released; Bob Barker still hosted ?The Price Is?Right?; Miley Cyrus was better known as Hanna Montana; and we were debating the long term merits of?HD DVDs or Blu-Rays! We were also still underwriting mortgages using a mirror and the fog test; and?verifying incomes with ream sequences.
Also interesting to me are the charts on pages 14 and 15. Second quarter sales of properties not?intended to be the buyer?s primary residence (i.e. investment, commercial, vacant) peaked two years?ago in 2013. However they are still up almost 24% from quarter two of last year. Almost all of the?increase seems to be in the $200,000 and up range.
Sales of properties intended to be the buyer?s primary residence are up 17% from the same quarter last?year. These sales are at the highest level since the sales disclosure data became publicly available. The?increase is over a broader section of the pricing market than non-primary sales.
Total mortgage lending (chart page 7) while not near the refinancing induced peaks of 2009, 2012 and?2013, is still quite strong. And it?s up about 33% from quarter two of last year.
Finally, it looks like the level of foreclosures is stable. See the trend line on page 16. This is the lowest?level of new foreclosures since I began tracking them ten years ago.
We now return to our regularly scheduled program: TRID Compliance Truth or Consequences. Watch for?the October 3rd inaugural season premier!
~John Bethell
June 22, 2015
Over the last few weeks I?ve talked with lenders about the August (Now! Woo Hoo!) October 1st Truth-in-Lending/RESPA disclosure changes. I?m happy that there seems to be a consistency in the conclusions?that are being made about the best way to comply with the new rules.
Every lender that I?ve talked with has decided that they will be the one delivering the Closing Disclosure?(CD) to the consumer. And all of them anticipate doing that with a confirmed receipt by the consumer as?opposed to mailing the disclosure seven days ahead of consummation (forever after herein referred to?as closing).
Lenders anticipate that the settlement agent will complete their portion of the CD and return to the?lender, so that it can be sent to the consumer. They also anticipate that any necessary amendments or?changes to the CD that happen in the disclosure period will be made by the settlement agent with the?Lender?s approval.
Many lenders are waiting for their software upgrade to be completed, tested and evaluated before?finalizing their process. Most anticipate this happening by the end of June.
Lenders will continue working from the purchase agreement closing date, but anticipate needing more?lead time to confirm a closing date. Seven to ten days is the time most often mentioned. And no lender?wants to issue a CD until the loan is clear to close.
No one has a good idea yet about how buyer mail-outs are going to work. An unanswered question is?whether the closing documents can be received prior to the end of the three day waiting period.
And finally everyone agrees that the required title insurance disclosure in the Loan Estimate is?confusing, convoluted and useless. Oh well. Maybe this can get straightened out in the extra sixty days?the CFPB gifted us.
Let me know if you?d like to talk about your specific situation.
~John
May 15, 2015
The HUD-1 settlement statement serves two important purposes. One purpose is disclosing the actual?settlement costs to the buyer and seller. The other is functioning as a disbursement record for the?settlement agent. The disbursements on the HUD-1 must balance to the disbursements from the?settlements agent?s trust account. One of the less obvious differences between the HUD-1 and the new?Closing Disclosure (CD) we?ll all be using after August 1, 2015 is that the CD is not suitable for use as a?disbursement record.
The pre-closing CD will contain the final numbers for loan and some closing costs, essentially the same?fees now disclosed on the final TIL. But, the CD may also contain estimates for other non-loan related?charges ? tax pro-rations, association dues to name a couple. And it will not reflect last minute buyer?and seller credits for inspections, repairs or possession. Those items will be finalized in the three day?waiting period and changes do not require a new disclosure period.
The CD also includes a convoluted calculation of the buyer?s title insurance costs. In our market the?amount disclosed for title insurance will significantly overstate the actual cost to the buyer in almost?every purchase transaction. As a result settlement agents will also be preparing a disbursement?statement for the parties to sign which will indicate all of the credits and charges required ? the same?information contained in a HUD-1 today. The settlement agent?s form will balance to the disbursements?made from the trust account.
The American Land Title Association has created a model settlement statement which most of its?members will use to record and balance disbursements. I?ve include a copy of the form with this?month?s report. I find it ironic that this disbursement statement is remarkably similar to the one I used?early in my career before the enactment of RESPA in 1976. Try not to laugh.
All of this serves to remind us that the new rules are designed to strengthen the consumer?s position?with regard to the lender?s disclosure of loan terms, fees and closing costs, not necessarily in regards to?the other parts of the transaction outside of the lender?s control.
~John Bethell
April 2015
Complying with the new CFPB disclosure rules taking effect later this year will require that lenders and settlement service providers work more closely than ever before. In order to accurately meet the disclosure time lines we will each be entering our information into each other?s forms. It makes sense to do as much as this as possible through exchanging the information in an electronic format that is integrated with our respective production software.
Black Knight Financial Services through its RealEC unit is providing an exchange platform that will integrate leading loan origination and closing production software systems. The platform is called Closing Insight?. Several national lenders have selected Closing Insight? as the way that they will exchange settlement information with title companies doing their closings.
Softpro, the closing production system that John Bethell Title uses is integrated with Closing Insight?. Thus, allowing us and participating lenders to cede data directly into each other?s systems. Closing Insight? also includes other features to enhance scheduling and management of closings and disclosures.?Softpro is building integrations with our leading loan origination systems as well.
As your decision making evolves, we are available to consult with you about the best way to integrate our respective responsibilities in the most cost effective and compliant manner. Don?t hesitate to let us know how we can help.
As many of the quarterly charts show, business is up considerably over last year?especially in the $200,000 to $500,000 range. By most measures we experienced the best first quarter purchase market in seven years. Refinancing also increased on a year over year basis but is still well below the recent boom years of 2009, 2012 and 2013. Our own pipeline of open orders indicates that the second quarter will also represent a big year over year improvement.
Have a prosperous and profitable spring!
John
The August 1, 2015 implementation date for the new loan and closing disclosures will be here before we know it. Prior to that time, lenders will need to be making a number of process related decisions. Each decision is sure?to have an effect on the ability of lenders to be compliant with the new regulations. Of equal importance, each?decision will also be judged by the marketplace in the context of how reliable the lender is at meeting time?frames and how easy they are to work with.
Two critical decision areas are:
Wells Fargo and Bank of America announced that they will prepare and deliver the closing disclosure in order to?minimize the regulatory risk. As both of those institutions have run afoul of the CFPB in recent times, minimizing?the regulatory risk is probably very important to them.
John Bethell Title will be prepared to close transactions under all the above scenarios. As your decision making?evolves, we are available to consult with you about the best way to integrate our respective responsibilities in?the most cost effective and compliant manner. Don?t hesitate to let us know how we can help.
We?re pleased to announce that Liz Bunton has been promoted to manager of our closing department. Liz joined?us three and half years ago as a transaction coordinator. She is well respected and liked by her teammates and?our clients. Liz will lead, manage, and be accountable for all aspects of our Anxiety Free Closing process and for?delivering upon our promise to provide an outstanding closing experience to our clients every day.
~John
The 2014 purchase market tried but could not match an Andrew Luck game winning drive.?Instead it ended just short of beating 2013. You will recall that after a frigid first quarter the?purchase market started down over 10% year over year. Fueled by lower interest rates and?stronger consumer confidence the fourth quarter of 2014 was up more than 11% from the?previous year. The strong year end resulted in a year over year difference of only 2.7%?down. Quite the pick me up heading into 2015, don?t you think?
Looking at the deed numbers (see chart page 13), I still think we?re below a normal market. We?haven?t had even 2100 transactions since 2008, a year which due to the subprime mess had?only three quarters of activity. The market prior to 2008 was juiced by the subprime market.?Homebuyer tax credits inflated the market (another football reference in case you missed it) in?2008 and 2009. Assume that a normal market is 2400 or 2500 transactions. That might indicate?a pent up demand of three to four thousand transactions has been created since 2007.?Definitely a nice thought.
I also noticed in the sales disclosure data (charts pages 16 and 17) that the decline in the 2014?market is solely attributable to properties that the buyer indicated would not be their primary?residence. That would be investment, vacant land and commercial transactions in most cases.?Primary residence sales have climbed modestly each of the last four years.
A stronger recovery in the new construction market will be required to reach normal levels. With?a stronger economy and more confident job prospects, the next few years look much?better for the purchase market.
The mortgage side of things however is not so rosy. In fact, mortgage originations are at their?lowest level since possibly the mid-1990?s. Fortunately for the survivors, the number of?mortgage providers is also at a low level compared to eight years ago and before. Those that?are left are sharing what market there is with fewer competitors.
I?m feeling really good about 2015. I think there?s a much better chance that it will exceed our?expectations than fall short. And if that happens, we will be right in the middle of the CFPB?regulatory changes to the loan disclosure and closing processes! Oh joy! Oh rapture!
~John Bethell