Lenders Wary of Sharing Closing Docs with Realtors Post-TRID: NAR
WASHINGTON — Lenders are becoming more reluctant to share closing documents with real estate agents now that they have more responsibility for them, the National Association of Realtors claimed Thursday.
The Consumer Financial Protection Bureau's new closing document, which replaced the HUD-1 settlement sheet on Oct. 3, put lenders on the hook for the accuracy of the closing document, which had previously been the purview of closing agents.
As a result, less than 30% of lenders said they are willing to show the closing document to a real estate agent, according to a survey of lenders conducted in January by NAR.
"Now that lenders feel they are liable for the CD, they are changing that relationship," said Ken Fears, the director of regional economics and housing finance for NAR.
When real estate agents are allowed to review the CD, "they are finding a high number of errors," Fears said.
When the closing document isn't shared, Realtors are finding it generally takes longer for the loan to close. "The fact that Realtors are finding errors suggests they could play a role," Fears said.
Since October, 10% of homebuyers have shifted from the standard 30-day interest rate lock to rate locks greater than 45 days.
"In addition to longer rate locks, we have also seen rate extensions rise, which add to the buyer's costs," Fears said.
When the closing is delayed, the buyer has to get an extension to lock in the interest rate. A rate extension is more expensive than the initial lock.
Overall, the survey shows 8.3% of settlements were delayed due to the new mortgage disclosure process and 1.5% of closings were cancelled during the final quarter of 2015.
"We are still seeing the delays through January," Fears said.
Midsized lenders (2,000 to 5,000 loans a year) reported the most delays and cancellations.
Vendor software issues are a significant factor behind the closing delays, which will take time to resolve. Meanwhile, real estate agents are likely to gravitate to the most efficient lenders.
"We are going to see some sorting," Fears said, as Realtors refer their clients to lenders that have adjusted well to the new Truth-in-Lending Act/Real Estate Settlement Procedures Act integrated disclosures, better known as TRID.
NAR quarterly surveys have also picked up a new reluctance on the part of a third of lenders to provide pre-approval letters to consumers who are hunting for a house to buy. The percentage has been declining over the last three quarters, but 30% are still reluctant to provide pre-approval letters.
"Pre-approval letters are important if you are going into a competitive bidding situation," Fears said. It tells the seller that the bidder can qualify for financing.
"Without a pre-approval, it places the bidder at a disadvantage," he said, particularly in markets with tight inventories.
The NAR survey is focused on purchase mortgage lenders and 20% of respondents are traditional banks, 10% are banks with joint ventures with real estate brokerages, 10% are credit unions and 60% are nonbanks and mortgage banking firms.