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Impending mortgage rule could slow closings, real estate agents say

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By Ashley Heffernan
Published Sept.21, 2015 from the Sept. 21, 2015, print edition

A change in the mortgage disclosure process could result in home closings taking longer.

The Truth in Lending Act-Real Estate Settlement Procedures Act Integrated Disclosure rule — commonly referred to as TRID — will go into effect Oct. 3 across the country.

The change is meant to help consumers better understand what they’re signing up for when they buy a new home or refinance their current home, according to Pat Polson, central division manager and senior vice president for SunTrust Mortgage in South Carolina.

The new Truth in Lending Act-Real Estate Settlement Procedures Act Integrated Disclosure rule goes into effect Oct. 3.The new Truth in Lending Act-Real Estate Settlement Procedures Act Integrated Disclosure rule goes into effect Oct. 3.
The rule, also called “Know Before You Owe,” was handed down by the Consumer Financial Protection Bureau. It combines the existing Good Faith Estimate, which explains the closing costs and terms of the loan, and the initial Truth in Lending disclosure, which gives the actual details of the loan — such as annual percentage rate and total amount the borrower will have paid at the end of the loan — into one Loan Estimate form. Under the new rule, borrowers must receive that document within three days of applying.

The existing HUD-1 settlement statement, usually given to homebuyers a day before closing, and the final Truth in Lending disclosure will also be combined into the new Closing Disclosure. That form must now be given to homebuyers at least three days before closing.

“The goal of the TRID rule is to really alleviate a lot of the pressure and confusions for buyers during the closing process,” Polson said. “When they actually purchase the home and close on it, while there’s disclosures, there’s a mound of paperwork obviously that happens with that process, and this is to bring some clarity to consumers upfront before they actually walk into the closing with the real estate attorney.”

He said the new rule is the “most sweeping change” he’s seen in the industry. His company, which has loan officers in Charleston, Columbia, Greenville, Spartanburg and Hilton Head Island, began providing seminars to explain the new rule to employees 18 months ago.

Realtors across the state have also been preparing for the changes. The S.C. Realtors Association and the Charleston Trident Association of Realtors offered classes to get their members up to speed, and leaders from both organizations are worried that closings will be delayed because of the new rule.

“Realtors, I believe, are ready for the upcoming changes. That doesn’t mean, in particular, that we like what’s being handed down from Washington, but we’re ready,” said Nick Kremydas, CEO of the S.C. Realtors.

Most of the association’s members have met with their commonly used lenders and attorneys to make sure consumers see as little impact as possible, he said.

“We know that over the last 12 months, almost 9% of all closings were delayed due to some issue in the lending process. Only about 1% of those were actually canceled,” Kremydas said, citing data from the National Association of Realtors as of the end of July. The association also said about 56% of Realtors plan to change their purchase agreements after the rule goes into effect to allow for a longer closing process.

“We’re concerned, and we’re going to be monitoring this to see exactly how many additional closings above normal are impacted. I think initially we are going to see a higher percentage there,” Kremydas said.

Delays could occur because of the new rule requiring receipt of the disclosure three days before closing.

Matt DeAntonio, a broker associate at Carroll Realty Inc. on the Isle of Palms and president of the Charleston Trident Association of Realtors, said that could be a problem for back-to-back closings — when someone sells a home then uses the proceeds to buy a new home the same day.

“People may have moving trucks full of furniture waiting to move, and then you don’t have a closing,” DeAntonio said.

If a significant variable changes on the day of closing — an increase in the annual percentage rate, addition of a prepayment penalty by the lender or alteration of the loan type — a new three-day waiting period would be triggered. He said those changes aren’t common, but they could happen.

“When you sign that contract, you need a period of time to do inspections, an appraisal, for underwriters to review the contract. That whole process typically takes, in a very general sense, about 30 days or more depending on the volume of what the lenders are dealing with,” DeAntonio said.

With the additional compliance regulations and new paperwork, he said a 30-day closing is going to be more difficult to accomplish. During the transition period, DeAntonio said he will tell clients to expect the process to take 45 days.

“Once everybody gets into the new rhythm of following these new procedures, it will be business as usual. There’s going to just be an adjustment time,” he said. “It’s important to highlight the sky is not falling. This is coming from a good place. It is to benefit the consumers.”

Reach staff writer Ashley Heffernan at 843-849-3144 or @AshleyBHeff on Twitter.

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