More than 75 percent of banks say loan closings have been delayed due to new mortgage rules that took effect last fall, reporting average delays between eight and 20 days, according to a new survey released this week by the American Bankers Association.
And some banks are altering the consumer experience in response. A quarter of the 548 banks surveyed say they have eliminated certain loan products since new mortgage rules took effect last fall because they felt like the government didn’t provide enough clarity around them. Some of those eliminated products include construction loans, adjustable rate mortgages, home equity loans, and payment frequency options.
“It’s clear from this survey and our discussion with bankers that TRID compliance remains a significant concern,” says Bob Davis, ABA executive vice president of mortgage markets, financial management, and public policy. “Consumers are seeing the greatest impact due to increased loan costs, fewer choices, and delayed closings—and that’s not what this rule was intended to do.”
The Consumer Financial Protection Bureau’s TILA-RESPA Integrated Disclosure rules (also known as TRID) took effect October 2015. The new requirements replace the Good Faith Estimate with a Loan Estimate and the HUD-1 Settlement Form with a Closing Disclosure, which must be given to buyers at least three days before closing to give them a chance to review the final numbers. The rules also include other disclosure and timing changes. The new process stems from the 2010 banking reform legislation.
Seventy-eight percent of bankers surveyed say they are waiting on updates on their systems from venders and that until then, many have to do manual workarounds. Likely as a result of the continuing delays, 94 percent of bankers surveyed say they believe the “good faith” grace period needs to be extended.
The real estate industry has been watching the closing delays closely as well. The National Association of REALTORS® has been tracking how both members and lenders who focus on purchase lending are dealing with TRID-related challenges.
“We just went through the TRID changes and that’s caused about a five- to six-day delay in closings,” Rei Mesa, president and CEO of Berkshire Hathaway HomeServices Florida Realty told RISMedia. “The industry is working through that; long term, it should be a positive, but in the short term, it’s created some challenges for lenders and title companies. It’s impacting the time it takes to schedule a closing.”
Source: “Survey: New Rule Reduces Mortgage Offerings, Causes Delays,” RISMedia (March 1, 2016) and American Bankers Association 2016 TRID Survey (2016)