The Housing Scene

Simpler or Not, New Rules Are Coming

More than a year and a half ago, Uncle Sam decreed that the pertinent mortgage information disclosed to borrowers at closing be simplified. So far, though, the process has been anything but simple.

Which leads to the question: Will "simplification" end up making it more expensive or more complicated -- or both -- for homebuyers to close on their loans?

Originally, lenders had 18 months to comply with the new rules, which combine the longstanding Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA) disclosure statements into one (supposedly) easier-to-understand form. The new form is called TRID, which stands for TILA-RESPA Integrated Disclosure.

The original Aug. 1 deadline has come and gone, but the Consumer Financial Protection Bureau (CFPB) has granted lenders a two-month reprieve; they now have until Oct. 3 to start using the TRID disclosure form. But practically every wing of the home finance business has been grousing about the new requirements since the get-go. Their gripe: It's too expensive to reprogram their computers, and even more so to retrain their staffs to comply with the new edict.

Some background is in order here:

TILA and RESPA used to be administered by two separate federal agencies: TILA by the Federal Reserve and RESPA by the Department of Housing and Urban Development. But now, as part of 2010's Dodd-Frank consumer protection act, which lenders detest, those laws are under the purview of the CFPB. CFPB created the combined TRID form as part of its "Know Before You Owe" program.

By combining the two forms into one, the agency believes it has succeeded in making it easier for borrowers to understand exactly what they are getting into. It tested the new form in a quantitative validation study, and participants provided more correct answers using the new single form than they did using the previous disclosures.

"Our new disclosures are easier to understand and use than the existing disclosures," the CFPB said in a release about the TRID form. "In addition, the loan estimate you get after you apply for a mortgage and the closing disclosure you get before you close are designed to work with each other."

That's all well and good. But lenders maintain they are having a tough time implementing the new requirements.

According to Becky Walzak, president at rjbWalzak Consulting, a Deerfield Beach, Florida, firm that advises the lending community, there are something like 2,500 new calculations that have to be programmed into lender systems. And on top of that, employees also have to be "re-progammed."

Lenders that aren't currently in at least the beta testing stage on what they say is a massive undertaking are behind the eight ball, says Walzak. "People have been scared to death about this thing," she says.

Nevertheless, Walzak believes most lenders have not put off compliance until the last minute.

That may be true, but as an indication that not all lenders are on a fast track, compliance vendor Ellie Mae is still offering RESPA-TILA workshops. The latest one will occur just two weeks before the new TRID deadline. (Ellie Mae has posted on its website a countdown of the days left before the TRID "monster" takes effect. To illustrate how lenders feel about it, the post includes a cartoon T. rex getting ready to pounce.)

Even the CFPB itself is offering last-minute guidance for lender laggards on its website.

So, how will this all play out for homebuyers?

While TRID is indeed troublesome for lenders and may initially cause some disruptions that impact borrowers, Ann Fulmer, principal at mortgage consulting firm Paladin in Atlanta, says it will be "a positive thing." Above all, Fulmer says the new requirements will put an end to the unhappy surprises borrowers get at closing, such as when the amount they were told they could expect to pay at closing -- the TILA statement they received when they applied for a mortgage -- falls far short of what they must actually pay, according to RESPA's HUD-1 closing sheet.

"A lot of shenanigans creep in, a lot of errors creep in" during the period between loan approval and closing, Fulmer says.

The jury is out on whether the new rules will make it more expensive for borrowers, as lenders claim it will. But compared to other changes mandated by the CFPB, the costs associated with TRID may just be a "drop in the bucket," says Fulmer.

How about simpler? That, too, is a wait-and-see question. But Fulmer thinks TRID may help answer the most frequent consumer questions -- What is my interest rate? What is my monthly payment? -- by putting them upfront in boldface on the first page.

Receiving the new form three days in advance, as mandated under the new rules, should also help borrowers make sure they are getting the same deal at closing that they were promised originally.

At the same time, though, Fulmer points out that the new TRID statement contains so much verbiage that it could be even more confusing for consumers than the old ones.

"Some think there's so much information that it is going to cause a problem," she says.

(Freelance writer Mark Fogarty contributed to this article.)

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