Lenders say law adding to homebuying delays

WEIGHING IN: From left, George J. Charette, president and CEO of Pawtucket Credit Union, Patricia L. Webb, senior vice president of retail lending and loan servicing, and Madeline M. Furtado, vice president of real estate lending, discuss the bank's operations. Webb said TRID has lengthened the average closing time on a home. / PBN PHOTO/ MICHAEL SALERNO
WEIGHING IN: From left, George J. Charette, president and CEO of Pawtucket Credit Union, Patricia L. Webb, senior vice president of retail lending and loan servicing, and Madeline M. Furtado, vice president of real estate lending, discuss the bank's operations. Webb said TRID has lengthened the average closing time on a home. / PBN PHOTO/ MICHAEL SALERNO

One of the newest installments of the Dodd-Frank Act, designed to tighten regulations surrounding the financial industry following the global financial crisis of 2008, has lengthened the homebuying experience in Rhode Island and temporarily disrupted the flow of mortgage lending at some institutions, according to some local lenders.

The new regulation, TILA-RESPA Integrated Disclosures, or TRID, was implemented last October and is designed to increase transparency and accountability for customers in the homebuying process.

Whether the design of the regulation is effective is a point of debate among those involved in the mortgage-lending process. The general consensus, however, is that it’s taking more time to close on a home.

“The biggest con of TRID is that it seems the law was written without any idea of what it takes to buy a house – in the effect that everything is a big timing issue,” said Nicholas Caccia, loan officer at First Home Mortgage in Providence. “The general public doesn’t have any idea what TRID is, so from the outside they see it as you taking way too long.”

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In basic terms, TRID has combined disclosure forms and implemented various timing elements into the homebuying process, which is designed to give borrowers a better chance at reviewing all the pertinent documents associated with the purchase. What it’s done in the eyes of many lenders, however, is mount more importance onto timing, which if missed could delay the whole process.

For example, loan estimates must be provided within three days of the borrower receiving the application. Closing disclosures must be received within three days of closing. If these timing benchmarks are missed for any reason, the time starts over.

If the annual percentage rate increases by more than 1/8 of a percent for fixed-rate loans or 1/4 of a percent for adjustable loans, a nonnegotiable three-day review period is tacked on. The three-day extension is also applicable if there’s any addition of prepayment penalties or adjustment to the type of rate.

For Caccia, the new regulation makes sense in theory, but doesn’t work particularly well in practice. It doesn’t take into account the countless number of minor hiccups that can play into the closing process. He says TRID has lengthened the average closing time one to two weeks, which is a typical estimate among lenders who spoke with Providence Business News.

“If we were to close within three weeks before TRID, now it’s four weeks,” said Patricia L. Webb, senior vice president of retail lending at Pawtucket Credit Union.

PCU is Rhode Island’s largest credit union, with assets totaling $1.7 billion, and has been preparing for TRID for almost a year. PCU President and CEO George J. Charette III says mortgage projections for the last year’s fourth quarter ended up getting pushed into the first quarter of 2016 because of the lengthened process.

“There was no material impact, but we’re always looking to hit certain growth numbers and that would have made it a little bit better last year,” Charette said.

The new regulation has also lengthened the turnaround time for home-equity closed-end loans at PCU, according to Webb. (Note: TRID does not affect home-equity lines of credit, reverse mortgages or mortgages secured by a mobile home or dwelling not attached to real property.)

Steven M. Parente, senior vice president and director of retail banking at Bank Rhode Island, has noticed a different trend, in which the average closing time on loans Bank Rhode Island brokers through larger financial institutions takes about a week to 10 days longer than at Bank Rhode Island. This, he says, could be a byproduct of higher mortgage volumes and because some banks are from out of state.

“The mortgages we take care of from start to finish, there’s been very little uptick,” Parente said. “It’s a matter of being able to drive to Lincoln with a sales originator and having a lot more control over the process.”

In Parente’s opinion, the regulation has actually ended up improving the process for the borrower.

“For people who’ve never taken out a mortgage, these documents are probably great for them because it’s a little bit cleaner and clearer,” Parente said.

And pending any changes to the federal regulation, the longer wait time will simply become the new norm, whether local bankers like it or not.

“It was supposed to provide more data points to the borrower to give them better information to make a better-informed decision. I can’t say that’s been the case,” Charette said. “It allows them a longer period of time to see the documents, but at the end of the day whether or not it gives them more information, or better information, I would say, probably not.” •

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