Disclosures for Lenders Have Growing Pains
With the October 2015 launch of TRID, which stands for TILA-RESPA Integrated Disclosure, mortgage loan originators will dedicate a lot of time navigating their way through the ins and outs made by the effectuation of the new mortgage disclosures, but these challenges are not likely to have a significant impact on the volume of loans originated in 2016.
However, some industry experts are expecting different results such as loan origination volume to be marginally less due to other things happening in the loan industry.
While the overall mortgage volume could drop from 2015’s levels, many expect the purchase mortgage volume to increase in 2016. The reason us due to increasing home prices, a better job market, and another yearly drop in the amount of all cash home sales.
In 2009 and 2010, the year after the housing and banking crisis, roughly 40% of home sales transactions were for all cash. That number has decreased to about 24% in 2015 and is forecast to be lower in 2016.
A loan originator needs to ensure that the information is accurate and the loan is originated in compliance so the risk of repurchase stays low. However, with TRID implementation, many lenders are reporting longer closing times.
When it comes to the new Closing Disclosure, early reports are showing that most lenders are taking 2-4 days longer simply to send out the Closing Disclosure to the borrower. Once that is sent out, then there is a 3 day waiting period. That can put a 30- or 45-day lock in jeopardy. What that means is the total cost to originate the loan will go up. As a result, a loan originator’s income will suffer somewhat. So, with this huge effort by the CPFB to help consumers, they are actually making them pay more in the long run.
Is the CPFB not enforcing the obvious? When it comes to RESPA laws, they currently allow a homebuilder to offer homebuyer incentives to use their preferred lender without violating any laws. The offer is still a choice because the consumer is not restricted to look elsewhere for better rates and terms. The truth is, the builder is obligated to give the consumer an affiliated business disclosure form that states the homebuyer is not required to use the builder’s lender and are advised to inquire with other lenders for a mortgage.
Now if, the builder increases the new home sales price to cover the incentive of using the homebuilder’s lender, that is not ethical. The price should never increase due to using a financial partner of the builder.
For lenders, the CFPB can impose civil money penalties of $5,000 per day per violation for noncompliance, $25,000 per day for reckless violations and $1 million per day for knowing violations. Such fines do not apply to trusts, but they fear being sued by their investors in the event of loan losses.