New National Mortgage Guidelines: What Buyers and Sellers Should Know to be Prepared
Following the worst recession since the Great Depression (largely fueled by a mortgage crisis), came major changes to the loan mortgage application process. New rules have been instituted, transforming the process for buyers and sellers.
In the Fall of 2008, our country fell into the worst recession since the Great Depression — largely fueled by a mortgage crisis and a subsequent collapse in housing markets. Lucky for us, Washington, D.C., produced lower than average amounts of foreclosures due to our strong local economy and stable work force. Though we still experienced a very difficult period in housing, especially in outlying suburban communities in neighboring Maryland and Virginia. For the first time in decades, there was a consensus in congress to overhaul the national financial markets, which included the mortgage application and loan disclosure processes that was seen as a major contributor to the housing crisis. As a result, the “Dodd-Frank” Wall Street Reform and Consumer Protection Act was signed into law on July 21, 2010, which outlined a multi-step process with staggered deadlines in an effort to (in part) bring greater transparency and oversight to the application processes, while giving consumers a better understanding of the costs and terms of their loan. Welcome to the market, TRID.
What’s TRID and Why Does This Matter?
As of October 3, 2015, major changes to the mortgage markets took effect as part of Dodd-Frank legislation known as TRID (TILA-RESPA Integrated Disclosure), which changed the ways in which a lender and title companies can estimate and implement transactional fees on new loans, which will impact buyers and sellers in a few meaningful ways. After speaking with veteran industry-leading brokers, I’ve created a list of some of the key takeaways that you should know as a buyer and seller moving forward in the marketplace.
The new guidelines have created a set of fees that can and cannot be changed by your lender once the original estimate is generated to the mortgagee (historically called the “good faith estimate”). They include all taxes (property and transfer), lender fees, title company fees (including lender and owner’s title policies), and a few additional line items. In short, your lenders are going to verify and re-verify those items before generating a commitment because they will be stuck floating the bill if they are off in the least bit. That said, there are rumors floating around that nothing can be changed without a three-day waiting period, though this is not the case. There are certain items that can be changed (with the consent of both the buyers and sellers) prior to settlement, but not in all cases. This also means your lenders may want more information sooner, so they can get a jump on preparing the estimate. Perfection from the start is now the standard in lending, so you better have an agent and lender who are knowledgeable, otherwise your loan or purchase contract can quickly come screeching to a halt if you’re not compliant.
Getting homeowners insurance quickly after going under contract will be necessary, but will also require having a completed appraisal (which will cost you money). So without getting too far in the weeds, be ready to spend money early on in the transaction. Historically, this wasn’t always the case, as you could usually wait until after the inspections to order an appraisal, allowing buyers to back out of the deal if they were unsatisfied before sinking additional costs into the property. From here forward, the window of time you can wait to commence the administrative aspects of the transaction just shut. What window?
You are going to need to work much closer with your lender moving forward in order to meet critical deadlines in the sales contract. I cannot emphasize this point enough. In Washington, D.C., our sellers demand strong financing with any contract, largely because the market is competitive and picking a good contract as a listing agent is critical to getting to closing on time. Because of the new rules, everything you submit to your lender while completing the mortgage will take longer than before, making it really important that you work closely with your lender to make sure you are not missing key deadlines that could put you in default based on the purchase agreement. For example, if you have a 30-day financing contingency built into the contract, it will be very important for you to not miss a beat when the lender asks you for a W-2, or some other document. If you wait, you could easily miss that deadline, putting you in default of the sales contract and at risk of losing the property (and even your earnest money).
The reality remains that new rules and regulations in the mortgage and financial markets were designed to give you — the consumer — a better and more equitable experience and should be readily embraced. On a practical level, you will not likely notice anything other than a change to the average days it takes to settle, which I’ve been told by a number of sources will increase to a 45–60 day range for the time being. Beyond that, I will suggest that whether you are a buyer or seller, now more than ever it is important to choose a real estate professional with working knowledge of the new regulations because of the impact they have to the overall transaction and your ability to navigate the process. Protect yourself and always hire someone who will guide you from start to finish without incident, which now just got a little trickier. The same can be said when deciding on your lender, too. Last, I would suggest that you prepare well ahead of time because getting the proper documentation to your mortgage broker in a timely manner has never been more important. But as always, the markets will adjust, and in no time these guidelines will become the new normal and not a big deal. Until then plan, prepare, and pack your patience!