New mortgage rules are coming

By JEFF LAZERSON / CONTRIBUTING COLUMNIST

6/11/2015

Last week I wrote about the settlement process overhaul that starts August 1, called TRID (TILA RESPA Integrated Disclosure). This week in part 2 of the column I promised to explain the turf wars and other issues for you to be aware of in this home finance historic shift.

It's supposed to be about the buyers and sellers. Someone better tell the service providers.

Turf war No.1 is going to be lenders and realty companies fighting over the acceptance and approval of independent and realty firm-affiliated or owned escrow companies. This custom of using escrow companies is found almost exclusively in southern California. Title companies or attorneys are typically the closing agents around the rest of the U.S.

August 1, the creditor (lender) is liable to the buyer for mistakes in the Closing Disclosure (CD), regardless of which service provider made the actual mistake. So, many lenders, especially the big boys, will be implementing a pre-approved supplier lists before allowing third parties to be part of the transaction.

The creditor is subject to enforcement action by the Consumer Financial Protection Bureau (CFPB). Attorney Richard Horn, the man charged with getting TRID up and running while he was at the CFPB said, "The CFPB enforcement actions typically mandates no indemnification from third parties. Their dissent decrees preclude creditors from going after third parties for civil money penalties."

For example, Larry the lender approves the CD for Billy the borrower's purchase. Escrow officer changes some of the settlement numbers without the lender's knowledge. Loan closes with a $5,000 mistake that hurts the borrower. Now, it's the lenders liability.

Can you really blame the lender for this type of vigilance, given the exposure? Yet, realty companies love to control who gets to play in the transaction sandbox. Sometimes, it's about service levels and sometimes it's about the payola, legally received or not.

What about all of America jumping into this totally new settlement process blindly?

Ken Markison, vice president and regulatory counsel at the Mortgage Bankers Association said, "Because the rules don't allow the use of forms before August 1st, and because there are so many transactions, particularly at this time of year, there is a real concern about how the process and closing will work."

Markison cites the requirement of the three-day wait to consummate the loan and having to restart the clock if the APR changes and triggers a new three-day wait, for example.

That can really cause some heartburn, especially for multiple transactions that are dependent on the transaction in front needing to close first.

One positive turf war is going to be a reduction in and simplifying of certain charges. For example, most appraisers and appraisal management companies hate to be put on the spot ahead of time for appraisal quotes. In this new world, they will be pressured to come up with consistent pricing upfront because there are is no wiggle room to change the quote to the consumer.

Title and escrow company charges will flatten out, becoming less costly. Charging ala carte messenger fees, wire fees, loan packaging fees, or niceness fees are all going away.

Starting an August transaction is a fool's game. Heed my advice from last week's column. Buy now. Refinance now. Or, wait until September when the dust settles.

If you have questions or comments, please contact Jeff Lazerson by clicking here.