Mortgage Industry Changes and Relocation

Information about the Truth in Lending Act (TILA) / Real Estate Settlement Procedures Act (RESPA) / Integrated Disclosure Rule (TRID)

You may have heard about upcoming changes in the mortgage industry and how they will affect consumers, including relocating employees. This summary will provide some background on the changes and how they might affect both your relocation policy and your employees.

Background

The Consumer Financial Protection Bureau (CFBP) has been working on implementing changes in how mortgage lenders disclose loan information to consumers. Primary goals for this activity were to make the buyer more aware of actual costs to procure and maintain their mortgage in a clearer format, and provide time for a buyer to review and understand their mortgage information prior to closing.

As a part of this process, the CFBP decided to combine components of two prior Acts that affect real estate mortgage disclosures and closing processes. The Truth in Lending Act and the Real Estate Settlement Procedures Act have been combined into a new rule that will govern real estate closings and mortgage disclosure. These changes will take effect with loan applications that are taken beginning October 3, 2015 so it will likely begin to affect closings that occur from early to mid-November.

 Effects on Buyers / Transferees and Relocation

There are some aspects of this rule that will impact both how corporations communicate relocation policy to employees and the closing process itself.

New Language

TRID eliminates the Good Faith Estimate and HUD1 Statements that were used in the past and introduces new forms to the employee with different language. One key aspect of this change is that the term “Origination Fee” will no longer be used in its current context. In the past, lenders had the flexibility to list Origination Fees interchangeably with Origination Costs or Discount Points. This led to situations where it was difficult to determine what a lender was specifically charging for. The new forms will create a clearer distinction between the fees that a buyer pays for costs related to procuring the loan (such as an application fee) vs. costs that are used to buy down an interest rate (discount points or “points”).

New Process

Another upcoming modification is that some changes (including changes in the consumer’s interest rate or loan product) will require a 3-day notice prior to closing. This means that the old practice of “updating” closing documents with some information at the actual closing table will no longer be allowed. Therefore, all the various players in the real estate transaction must ensure that certain information is correct and agreed upon at least three days prior to closing. If any of that information changes, the closing will have to be delayed for the 3-day waiting period. Since these new rules will not be fully tested until actual closings start taking place, the National Association of RELATORS® is recommending that closings be “ready to go” seven days prior to the actual scheduled closing. This includes scheduling property walk-throughs in advance.

Effects on Relocation

This new rule affects relocation in both how policy is communicated and the relocation timeline:

Policy Intent and Communications

Employers have different ways of expressing and interpreting policy language related to new home purchase closing cost reimbursement. This new rule provides the opportunity to review specific policy language and draw clearer distinctions between costs related to the fees paid to close the transaction and discount points that may be used to provide a lower interest rate to an employee. It also requires the deletion of the terms “Origination Fee” and HUD1 Statement. We encourage you to review all of your current policies for any possible changes.

The Relocation Timeline

At least in the early stages of this conversion to a new process, we can expect some delays in home closings as various parties work through some of the more complicated aspects of this new rule and how they will be interpreted by various entities when all parties gather at the closing table. While NuCompass’ lenders are fully aware of and prepared for these changes, individual marketplaces or closing agencies may encounter some challenges along the way. Therefore, we will all need to be prepared to offer some flexibility in areas such as temporary lodging to accommodate this process until it is more established and becomes routine.

Summary

Like all government changes, there is much more below the surface than we have covered in this short summary. NuCompass will be working with real estate agents and our mortgage companies to support a smooth transition to this new process. Please feel free to contact NuCompass if you have any immediate questions.