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TILA-RESPA: A Builder’s Perspective

by James F. McClister

How builders should prepare for TILA-RESPA

Builders-TILA-RESPA-TRID-CFPB-ABA-Prepared-Regulations-Deadline

Pending the approval of a proposed amendment to extend its compliance deadline to Oct. 1, in less than two months, the real estate industry will find itself operating under of TILA-RESPA. Depending on whom you ask, the shift will either create more efficiencies or cause undue complications.

While the upcoming Consumer Financial Protection Bureau’s (CFPB) regulations will most immediately affect the lending side of the industry, all sectors of housing, central and fringe, stand on shifting ground, including builders.

In a recent interview with Builder, Michael Sullivan, general counsel for Pulte Mortgage, a subsidiary of the PulteGroup, explained how the enactment of the TILA-RESPA regulations will put pressure on builders to shore up communication deficiencies with partnering lenders.

“If items star moving as a result of the builder or consumer changing something, that can really affect the ability of a lender to close,” he said. “To the extent a builder can finalize the contract terms at least a week before closing and make sure that the closing date is scheduled with a degree of finality, they’ll be in good shape on the lending side.”

What Builders Should Expect and Do 

But the detriment of last minute changes and delays, which would disrupt disclosure timelines set forth in the new Loan Estimate and Closing Disclosure forms, will do more than stifle lenders, it will cost builders money and, possibly, their reputation.

If a closing is delayed, Sullivan said, despite the reason, a builder may have to “carry a fully built home on its books for extra days.” For however long a finished property stays on the books, the holding builder will be responsible for the associated carrying costs. What’s more, an extended delay reflects poorly not only on the lender’s brand, but also the builder’s.

“There are also customer service issues that come with consumers scheduling things like moving trucks, appliance deliveries and cable service,” Sullivan said. “If those closing dates change it means increased carrying costs for the builder and a terrible inconvenience for the consumer.”

As to what builders can do to prepare, Steve Linville, director of single-family finance for the National Association of Home Builders, told Builder in a statement that for small and mid-sized builders, the best thing they can do is be prepared.

“We’re stressing that they be aware of what’s going on and communicate clearly to their partners so there are no surprises,” Linville said.

In an additional preparation guide released by NAHB earlier this year, group officials urge that builders:

  • Submit paperwork at least a week before the scheduled closing date.
  • Communicate “clearly and often about the process” with professionals and the homebuyer connected to the deal.
  • Make sure your lender is aware of CFPB’s official interpretations to the rule, allowing the creditor to “clearly state” in the initial Loan Estimate that a revised Loan Estimate may be provided for a loan for a newly constructed house when the creditor expects the closing to occur more than 60 days after the initial loan estimate.

Love It or Hate It

With the regulations laid out and the compliance deadline currently set on August 1, it might be expected that builders, lenders and other affected professionals would be putting their affairs in order. But there’s a significant contingent of the industry still lobbying hard to extend the implementation deadline, providing businesses and professionals more time to acclimate to changes, which many have lambasted as damaging.

As part of the American Banker Association 2015 Real Estate Lending Survey, the group asked lenders for unrefined opinions on the CFPB and TILA-RESPA, and the responses were largely pessimistic, particularly when questioned about the CFPB.

Approximately 80 percent of respondents agreed regulations from CFPB will further reduce credit availability, stifling the industry’s long-term recovery, and half said the changes will have a moderate negative impact on business.

When questioned specifically on TILA-RESPA, responses were similarly glum. By May 1, only 9 percent of respondents said they had received the software needed to meet compliance from their vendors. And of those still waiting for software to arrive, 58 percent said vendors had given them delivery dates in July or later, with some getting no tentative date at all. Even from a cursory glance, it’s easy to see the animosity swelling among many in the industry. But the attitude isn’t all encompassing. Several have heralded the CFPB and TILA-RESPA as a much needed change.

Builders Alejandro Goldemberg and Martin Elortegul of Stripey Development in South Florida said their company is embracing the changes, adding that, at least for traditionally financed buyers, the consolidated forms and new timelines will be “beneficial since (clients) will receive the information well in advance.”

Mirroring their sentiment, Chip Poli, president of the Boston-based Poli Mortgage Group, said the new forms are a “response to the complaints about the forms being too complicated.”

“The new LE and CD doesn’t change the information too much, it simply combines the documents into something a little but more manageable, which I think is going to be helpful,” he said. “For clients, the forms are going to be great in helping them understand what the charges are and how much they’re going to pay. Tolerances are essentially the same; changes of circumstances are all generally the same. It’s just a lot less paperwork.”

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