Q: How can agents set expectations regarding trid
A: Our industry has been wired over time to expect everything to happen very quickly and for changes to be made on the fly, oftentimes right up to the last moment. With TRID (TILA RESPA Integrated Disclosures rule), a lot of expectations need to be reset, and it really starts with the real estate agent.
To start, the agent needs to work with the buyers, sellers and other agents to ensure that there is more time between the contract and closing to account for the extra days that will be afforded to the consumer on this new timeline. That is especially true in the weeks immediately following October 3rd, as everyone in the industry will be dealing with a steep learning curve.
Personally, if I were an agent I wouldn’t write a contract for a closing any sooner than 45 days. At least not until we get to the new year. There are simply too many things that can go wrong- and we all know that when we push things too quickly the result is rarely a happy and stress-free closing. I would also be wary of the lenders out there that will inevitably over promise and under deliver. Your loan officer may be well versed in TRID and his or her company may know all the details around maneuvering through TRID, but does the LO that has the other party’s transaction have the same knowledge? Back to back closings will be treacherous in the beginning. Set strong expectations and give yourself some extra time. You will be happy you did.
Second, agents should know that as lenders we will no longer be able to require documents before triggering an application and providing a Loan Estimate (the document replacing the Good Faith Estimate and Truth in Lending forms currently in use) to your buyer. That makes providing a legitimate prequalification to the buyer difficult, unless you take the time to explain to your buyer what the rule means and why it is important for the buyer to voluntarily provide the lender what they need to assess their ability to qualify for the loan they want. These details can be difficult to stay on top of with all the emotions involved in a real estate transaction.
At the end of the day these changes will be a very good thing for both the consumer and the lending industry as a whole. Be patient and know that if you give things a little more time we should all be happier as we remove some of the chaos from the lending process.
Q: Underwriting Standards: Will They Ever Loosen Up?
A: I think underwriting standards are starting to ease as appreciation settles back into most markets around the country, but I think we are a long way from any real loosening up of the scrutiny loans currently go through.
Too many people are still smarting over the disasters that occurred as a result of the financial crisis to forget those hard lessons any time soon. Today underwriters are more like auditors in their approach and, in many instances, common sense has simply left the building.
While there is a lot of debate around loosening standards, few lenders that deliver their loans into the secondary mortgage market have to overly document their files to prevent what we all hate: foreclosures. Lenders also need to make sure they aren’t going to be required to buy the loan back or indemnify the ultimate investor due to some manufacturing error. Unfortunately, we often see the very best buyers put through the most pain as we must document every facet of their financial picture.
Fortunately, many lenders do have common sense and can tell a good deal from a bad one. At Wintrust we have a portfolio loan program that can handle loans that “just miss” secondary market requirements. These aren’t the famous Liar Loans (stated income and stated asset) or “Fast and Easy” loans of the past; they provide quality buyers with some level of flexibility to accommodate the complications of their financial situation.
Over time I do expect the industry to relax a bit on underwriting standards, but I do hope that lenders remain prudent and avoid giving in to the temptation to give anyone the loan they want.
Q: How Can Agents Prepare Buyers for Underwriting?
A: As with TRID, agents can help the underwriting process by working to set proper expectations. Buyers need to have it reinforced to them that lenders aren’t out to simply make their life difficult by throwing up roadblocks on the path to approval. Too often buyers take it personally when a lender asks for more paperwork or for an explanation of some aspect of their financial picture. It’s better to cooperate and provide the items requested than to debate why they are needed. Buyers should be coached to understand that lenders are trying to avoid the mistakes of the past— not make things more difficult than they need to be.
Q:How Have Appraisals Changed?
A:The appraisal process has gotten easier as appreciation settles in and short sales and foreclosures abate. It still isn’t a perfect process and, because appraisers must use recent sales as comparables, sometimes appraised values lag behind the marketplace, especially markets that are very hot. Occasionally a buyer wants a property and is willing to pay a price that is very difficult to substantiate with the recent sales that have closed in that market. Being willing to accept that fact and put down a little more down payment than the minimum is often the only option if the appraisal is rebutted, but there are no supporting sales in the market.
The appraiser’s job is one of the hardest out there. These hardworking folks are forced to spend much more time than they used to documenting their appraisals and doing all the extra paperwork thrust upon them by appraisal reform. Most are making less today, adjusted for inflation, than they did way back when I first got into the business.
And on top of that, each appraisal probably takes twice as long as it would back then. That’s why we see few young people entering the profession and an ever-increasing number of really good, seasoned pros leaving it. In some parts of the country, appraisals are taking more than a month to get at any cost (like in parts of North Dakota). Until consumers, lenders and real estate professionals are willing to pay more, it is unlikely we will see many quality new people enter the business, which is really what the industry needs right now.