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Loan Lags: How Real are They?

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Posted On: 04/20/2016

QUESTION:

We want to buy a home and lock-in today’s rates. Our lender warned us that because of new government regulations it may not be possible to close within the lock-in term, so we may want a floating rate. Just how bad are the closing delays?

ANSWER:

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Mortgage lenders and real estate agents braced for big delays in routine closings in advance of the October 2015 implementation of TRID, new rules designed to provide more information to homebuyers

The TILA/RESPA Integrated Disclosure standards – also called Know Before You Owe – ran 1,888 pages and is undeniably complex. That said, lenders had almost two years to prepare. Most were ready.

The best evidence comes from Ellie Mae. According to the latest “Origination Insight Report,” the typical loan took 48 days to close in February, compared to 45 days in September 2015.

However, some loans are closing faster. A typical refinance on average took 44 days to close in February versus 52 days in July. FHA refis took 43 days to close in January compared with 53 days in July. Conventional refis took 44 days to close in February as opposed to 52 days in July.

If the problem were TRID alone, then one would expect purchase financing and refis to both be delayed but that’s not the case. It appears that purchase loans are taking longer but not refinancing loans– an oddity, since TRID impacts both types.

In February, NAR said 10.4 percent of all closings were delayed immediatelly following the October rollout of TRID. The delays averaged 8.8 days, NAR reported.

Whatever the cause, a delay in closing can be a real problem, since it can raise financing costs.

Typically, according to NAR, a homebuyer locks in a mortgage rate 30 days before settlement. Locking in the rate insures against fluctuations, but the buyer must pay for this insurance. Typically, a buyer pays a premium for each 15-day increment added to the base lock. If the settlement takes longer, they may need to pay for a rate extension, which is more costly than a rate lock.

Homebuyers impacted by TRID-related delays may face higher costs due to longer rate locks or extensions. It is unclear whether lenders are absorbing these costs or passing them onto consumers. However, lenders would not absorb the costs of delayed moves and scheduling for both the buyer and seller.

Talk to several lenders and ask about closing delays or problems they have had since October, and the cause of those problems. Have you shopped for a loan several places? You may find that some lenders have had better closing success than others.

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Email your real estate questions to peter@ctwfeatures.com

Peter G. Miller is the author of The Common-Sense Mortgage and a veteran real estate columnist. Have a question? Please write to peter@ctwfeatures.com.

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