New mortgage rules: A 'Y2K' panic that didn’t happen

New rules designed to give borrowers a better understanding of their home loans are apparently not causing the widespread disruptions in the housing market that some had predicted. Lenders and real estate agents alike had warned of potential delays that could even scuttle some sales, but so far they have not come to pass.

"I think it was a Y2K analogy where expectations of the worst happening just weren't there," said David Stevens, president and CEO of the Mortgage Bankers Association.

A real estate agent with a potential homebuyer outside a home in Mackinaw, Ill.
Daniel Acker | Bloomberg | Getty Images
A real estate agent with a potential homebuyer outside a home in Mackinaw, Ill.

The Truth in Lending Act/Real Estate Settlement Procedures Act Integrated Disclosure Rule, instituted by the Consumer Financial Protection Bureau, requires lenders to disclose all final costs and details of a mortgage at least three days prior to closing; that necessitated financial institutions to revamp their software programs and retrain employees in new procedures.

The fear was that even after more than a year of preparation time, lenders would be unable to deal with last-minute changes to loans under the new requirements, and closings would be delayed. In a worst-case scenario, with the majority of buyers selling their current home simultaneously, a delayed closing could tank the deal.

"While there was apprehension about TRID, so far impacts are minor," said Tom Popik, research director at Campbell Surveys.

Campbell's HousingPulse survey tracked the share of home sales that closed on time as well as total average closing times for all loan types and found, "no clear trend" across loan types. The total average closing time including delays for most loan types stayed relatively level or showed only a slight increase between September and October, according to the survey.

"I think if we see a significant slowdown, and it doesn't have to be that significant, 30 to 60 [days] is pretty significant, if we see that slowdown start to happen, we're going to see deals fall through and lenders change in the middle, and that's the cascading effect that we are most concerned about," Mark McElroy, CEO of Pavaso, a digital closing platform, said in early October, when the rules went into effect.

At this point TRID is still quite new, but real estate agents are not raising red flags.

"We are not hearing so much noise," admitted Lawrence Yun, chief economist of the National Association of Realtors, who characterized Realtors as a "noisy bunch." He suggested the rule changes may in fact be a nonevent.

In a twist, anecdotal evidence suggests the new rules could be expediting closings.

"Closings are faster because they [borrowers] have read all the forms," said Stevens, recounting a conversation he had recently with a national homebuilder.

Some smaller lenders, who don't have as sophisticated systems are struggling somewhat, according to Stevens, but that is not the vast majority of the market. Last-minute preparations had created a feeling of panic leading up to October, with some real estate agents pushing buyers to close early just in case. The CFPB's director even implemented an unofficial grace period for lenders to comply, but that may, in the end, be unnecessary.