9.24.2015 TRID and Real Estate Agents

The TILA-RESPA Integrated Disclosure rule (or TRID for short), the new mortgage disclosure rule that will take effect on October 3, is going to significantly change the mortgage process for homebuyers. Therefore, real estate agents should get up to speed right away about how the new rules are going to affect them and their clients.

Replacing Disclosure Forms

TRID will replace the mortgage disclosure forms that have been used for decades with two new forms. The Good Faith Estimate and initial Truth in Lending statement will be replaced with a Loan Estimate, while the final Truth in Lending statement and HUD-1 settlement statement will be replaced with the Closing Disclosure. Both of these new forms are shorter than the forms they replace.

The Loan Estimate will explain the key features of the mortgage, including all of its costs and potential risks. It must be delivered to homebuyers within three business days after they submit their mortgage application. TRID defines the mortgage application date as the date when the homebuyer provides his or her name, income, Social Security number, property address, estimated property value, and the mortgage loan amount sought.

Also, lenders cannot impose any fees (except reasonable fees for obtaining a credit report) until homebuyers have received the Loan Estimate and indicated that they intend to move forward with the mortgage application.

The Closing Disclosure will include all of the mortgage transaction details — in particular, the mortgage’s terms, fees and closing costs. It must be delivered to homebuyers at least three days before the loan closing. Both of these new disclosure forms can be delivered to borrowers in person, via postal mail or electronically.

Effects on Real Estate Agents

So how are these new disclosure forms going to affect real estate agents and their clients? First, the new forms should be easier for homebuyers to understand. This, in turn, should result in homebuyers who are more informed (and more comfortable) when they reach the closing table, which could make real estate agents’ jobs a little easier. Also, it might now be easier for homebuyers to shop for a mortgage with the best terms and lowest rate.

With easier-to-understand forms in homebuyers’ hands at least three days before the closing, the closing experience should be more streamlined and less confusing for homebuyers — again, making the agent’s job easier. In fact, the roles of the real estate agent, lender and title company at closings might change due to the new Closing Disclosure.

However, the three-day timeframe associated with delivery of the Closing Disclosure could severely disrupt mortgage closing dates — and thus, homebuyers’ and home sellers’ carefully crafted plans for moving into and out of homes. This is because if any significant changes are made to the mortgage’s terms — like a change to the APR or the addition of a prepayment penalty, for example — the homebuyer must receive a new Closing Disclosure and the closing must be rescheduled to accommodate the three-day window. This could make real estate agents’ jobs more difficult as they work with their clients and sellers’ agents to juggle all the details involved in buying, selling and moving.

Lender Caution

Another thing to keep in mind is the fact that most lenders will probably be extra cautious when underwriting mortgages during the months after TRID becomes effective to make sure they remain in compliance. This could slow down the mortgage application process, delay closings and throw another wrench into homebuyers’ and home sellers’ moving plans.

We’re interested in hearing from you. What impact do you think the new disclosures will have on lenders, real estate agents and borrowers? Send me an email at steven@lendtrade.com.

9.20.2015 TRID and Lenders

In just a little over a week, the TILA-RESPA Integrated Disclosures rule (or TRID) will take effect.

Almost all mortgages for which loan applications are received after October 3, 2015, will be subject to the new TRID disclosure rule. The only exceptions are home equity lines of credit, reverse mortgages, and mortgages secured by a mobile home or dwelling that’s not attached to real property.

Integrating Disclosures

TRID is a 1,888-page rule drafted by the Consumer Financial Protection Bureau (CFPB) that will drastically alter the mortgage origination process by integrating the Good Faith Estimate, HUD-1 settlement statement and Truth in Lending statements (both initial and final) into two new disclosures — a Loan Estimate and the Closing Disclosure.

In addition, TRID makes lenders responsible for the Closing Disclosure and also imposes new accuracy, timing and provision requirements for the disclosures, which are significantly different from existing disclosures. They use a new payment schedule, for example, and the Loan Estimate itemizes closing costs. Also, the new Closing Disclosure does not use the line numbers from the current HUD-1 statement.

Finally, TRID changes the definition of a loan application as it applies to disclosure requirements. According to the new definition, an application has been submitted as long as it includes the borrower’s name, income, Social Security number, property address, estimated value of the property, and amount of financing sought.

Delayed Effective Date

TRID was originally scheduled to become effective on August 1, but an interesting turn of events ended up pushing the effective date back by about two months.

Believe it or not, the CFPB — which doesn’t cut the financial services industry much slack when it comes to regulatory compliance — missed a deadline for submitting a TRID report to Congress and the GAO. Under the Congressional Review Act (CRA), major rules like TRID cannot take effect until at least 60 days after this report is submitted, and the CFPB didn’t submit the report until June 16.

The CFPB could have pushed the effective date back just two weeks to August 15, but instead it decided to delay it until October 3. The reason, it said, was because it was concerned that making TRID effective in mid-August could pose operational challenges for banks — especially given the delays in software updates from bank technology vendors.

Valuable Extra Time

A more cynical view is that the CFPB pushed the effective date out two months to get a little positive publicity given the growing criticism and pressure it was facing regarding TRID. Regardless of the reason, the delay gave financial institutions some valuable additional time for testing their loan origination software systems and document production software. It also gave banks more time to obtain additional CFPB guidance.

And most lenders are doing just this. According to one survey, 85 percent of lenders said the delay has been beneficial in helping them prepare for TRID. Most of these lenders said they were using the extra two months to train their staff on the new TRID disclosures and test the technology required for compliance with TRID.

We’re interested in hearing from you. What impact do you think the new disclosures will have on lenders, real estate agents and borrowers? Send me an email at steven@lendtrade.com.

9.10.2015 TRID and Consumers

The delayed implementation date of October 3, 2015, for the TILA-RESPA Integrated Disclosures rule (or TRID) is right around the corner. Since TRID was first announced by the Consumer Financial Protection Bureau (CFPB), bankers, mortgage lenders and those in the real estate industry have been trying to determine exactly what its impact is going to be on the different parties to a real estate transaction.

This week we’ll take a close look at the potential impact of TRID on homebuyers. In coming weeks we’ll examine TRID’s potential impact on lenders and real estate agents.

Pros and Cons for Homebuyers

The CFPB’s goal with TRID is to make it easier for consumers to understand the information contained in mortgage disclosures, like the loan’s terms, fees, interest rate and closing costs. To do this, TRID replaces the initial Truth-in-Lending disclosure and Good Faith Estimate with a Loan Estimate. In addition, it replaces the final Truth-in-Lending disclosure and HUD-1 settlement statement with the Closing Disclosure.

Both of these forms are shorter and easier to understand than the old forms they replace, so the first impact on homebuyers will undoubtedly be positive. Easier-to-understand forms should translate into more informed homebuyers who have a better grasp of all the details and nuances involved in the mortgage closing process before they sit down at the closing table.

But there’s another potential impact on homebuyers that could turn out to be negative. This is the requirement that the Closing Disclosure be provided to borrowers at least three days before the closing date. The potential problem arises if any changes are made to the loan terms prior to the closing — for example, changes to the APR or the addition of a prepayment penalty.

In this scenario, the homebuyer must receive a new Closing Disclosure and the three-day clock is reset. This could disrupt the closing, possibly forcing it to have to be rescheduled to comply with the TRID requirement for a three-day window between delivery of the Closing Disclosure and the closing itself. This, in turn, could throw a big wrench into both the buyer’s and the seller’s plans for moving into new homes.

Higher mortgage costs are another potential negative impact of TRID on homebuyers. According to a recent Fannie Mae survey, compliance costs for mortgage lenders have increased by 30 percent so far this year over last year as lenders prepare for the new TRID disclosure requirements. These costs are likely to be passed on to homebuyers, making it more difficult for many of them to complete the mortgage process and buy a new home.

Law of Unintended Consequences

Like with many well-intentioned things the federal government does, there are usually unintended consequences — and this would appear to be the case with TRID. Only time will tell whether or not the benefits of shorter and simpler mortgage disclosure forms override the drawbacks of potential disruptions in mortgage closing and homebuyer moving dates and higher mortgage costs.

We’re interested in hearing from you. What impact do you think the new disclosures will have on homebuyers? Send me an email at steven@lendtrade.com.

9.3.2015 Why Mobile Banking Is on the Fast Track

Mobile banking is a relatively new banking service, but it is being adopted very quickly by bank customers — much faster, in fact, than online banking was adopted a decade or so ago. One reason for this is the explosion in the popularity of smartphones.

Most Americans now carry a smartphone that gives them access to the Internet from practically anywhere and at any time. Many smartphone users are constantly on the lookout for new ways to use their phones and new apps to download that can make their lives easier. This makes mobile banking a natural service extension for banks.

Opportunities for Banks and Customers

Mobile banking presents a tremendous opportunity for banks to offer cutting-edge new products and services to customers while also lowering transaction costs and increasing customer engagement and retention. Mobile payment transactions worldwide are forecast by Juniper Research to quadruple over the next five years to more than $1.3 trillion, while mobile commerce revenue is forecast by Forrester Research to hit $119 billion this year.

Research indicates that customers who use mobile banking are much more engaged with their bank than those who just use online banking. According to Monitise, a provider of mobile banking and payment solutions, mobile banking customers use their mobile devices to engage with their bank somewhere between 25 and 35 times every month, or nearly every day. In comparison, the average online banking customer only engages with his or her bank four or five times a month, or about once a week.

Not surprisingly, young bank customers, especially Millennials, are particularly open to mobile banking. According to Monitise, four out of 10 young customers indicated that access to mobile banking services was a major factor in their choice of their current bank. In fact, many Millennials will never even use online banking, going straight to mobile.

Mobile Banking’s Ongoing Evolution

Although mobile banking is fairly new on the scene, it is already moving very rapidly through various stages of the product evolution cycle. According to Forrester Research, mobile banking is currently in the middle of a four-stage evolution.

The first generation of mobile banking consisted mainly of performing basic banking tasks like checking account balances, transferring money and paying bills using a mobile device. The second stage added basic intelligence, like financial activities performed by the customer and the customer’s physical location (including whether he or she is in a branch).

In the next two stages, mobile banking will be pushed beyond just doing online banking on a smartphone. These next generations of mobile banking will take advantage of the unique attributes and capabilities offered by the mobile experience to support a wide range of banking activities, products and services. These will include marketing, new account openings, customer onboarding, application processing, and point-of-sale mobile payments and mobile commerce.

On the Cutting Edge

Banks that want to stay on the cutting edge of mobile banking should be looking for new ways to deliver products and services in the mobile environment that take advantage of mobile’s unique technologies and capabilities. These include geolocation, motion detection, voice-based navigation, and biometric authentication.

Among the mobile banking products and services that are on the drawing board or in the early stages of development or rollout are mobile photo bill pay, mobile video chat, secure messaging and, of course, mobile payment services like ApplePay. Next-generation mobile banking will also enable banks to leverage customer data (including demographics and transaction history) to better target merchant-specific offers like coupons, discounts and loyalty rewards to their customers’ mobile devices.

If history is any indication, mobile banking is not only here to stay, but it could represent the future of banking. So it bears keeping a close eye on — as well as some serious thought as to how your bank can gain a competitive advantage in mobile banking in the months and years to come.

9.3.2015 Online Lending for Small Businesses

When they need to borrow money for their business, the first place most small business owners think of visiting is their bank. After all, as the infamous bank robber Slick Willie Sutton supposedly said when asked why he robbed banks, “because that’s where the money is.”

But a new type of lending platform has recently emerged that enables owners to bypass traditional lenders and secure business loans over the Internet. Online small business lending takes several different forms, including peer-to-peer lending, crowdfunding and cloud lending, says Steven Schipper, CFA, a Costco member and the managing director of LendTrade, a consulting firm that specializes in lending.

How Online Lending Works

Peer-to-peer lending is more similar to venture capital than it is to bank loans, says Schipper. “Peer-to-peer lenders are primarily individual investors looking to earn a healthy return on their money.” LendingClub.com and Prosper.com are two of the biggest peer-to-peer lending websites today.

Most crowdfunding lenders, meanwhile, don’t expect to earn high rates of return on their money. Instead, they are looking to help entrepreneurs raise money to start new businesses or launch new products and services.

This makes crowdfunding sites like IndieGoGo.com, Kickstarter.com and Kiva.com good options for business owners looking to raise money for new startup ventures. “Crowdfunding investors are often family members and friends who want to help entrepreneurs get new businesses off the ground,” says Schipper.

There’s one catch with crowdfunding, though: Business owners typically must raise 100 percent of the money they request in order to receive funding. If they fall short, even by just a few dollars, they don’t receive any money at all.

Bank Lending … Without the Bank

Cloud lending is a little bit more like traditional bank lending, but without the bank, says Tim Tedrick, partner, Wipfli… “Cloud lenders typically specialize in making small business loans of less than $100,000,” says Tedrick. “They offer a simple value proposition: easy online loan application and fast decision and loan funding — in other words, no fuss, no muss.”

Two of the biggest and best-known cloud lenders today are OnDeck and Kabbage. Founded in 2007, OnDeck is already one of the nation’s largest small business lenders — it has loaned more than $2 billion (up from $1 billion just a year ago) to about 30,000 small businesses in the U.S. and Canada. OnDeck offers term loans of up to $250,000 with maturities between 12 and 24 months, as well as lines of credit up to $20,000.

OnDeck uses a proprietary credit scoring model it developed called OnDeck ScoreTM that enables it to give applicants a loan decision in just a few minutes after they fill out a simple online loan application that usually takes 10 minutes or less. It can then can wire transfer the money or send it via ACH to the business’ account within one day.

Kabbage, which has made more than $550 million in small business loans, is similar to OnDeck but specializes in lending to online merchants and e-commerce businesses. They claim to approve small business loans by “looking at real-life data, not just a credit score.” This includes online merchants’ seller history, customer reviews and user feedback ratings.

Pros and Cons of Cloud Lending

“The biggest benefits of cloud lending for small business owners are the ease of application and relatively high approval rates compared to bank small business loans,” says Schipper. “In general, it’s easier to get a small business loan from a cloud lender than it is from a traditional bank.”

However, Tedrick points out that this easy loan application and approval process comes at a cost. “Cloud loans usually feature higher interest rates than bank small business loans,” he says. “However, if you need cash fast and can’t qualify for a bank loan or line of credit, this might be an acceptable trade-off.”

How Much Does It Cost?

OnDeck’s 24-month term loan features an APR of between 19.99% and 39.99%, while shorter-term loans feature an APR as low as 10%. There’s no application fee, but there is a loan origination fee of 2.5%.

Kabbage offers small business lines of credit with six-month terms. It charges fees ranging from 1% to 13.5% of the amount of money actually borrowed during the first two months and then 1% for each of the remaining four months of the term.

9.3.2015 What is TRID?

This new mortgage disclosure rule, which takes effect on October 3, has the potential to drastically change the mortgage application and approval process for homebuyers, mortgage lenders and real estate agents.

TRID is an acronym that combines two other acronyms (ugh): the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA). Add Integrated Disclosure rule and you get TRID.

What’s the Goal of TRID?

The stated goal of TRID, which is brought to us by the Consumer Financial Protection Bureau (CFPB), is to help make mortgages more transparent for consumers and easier for them to understand. It purports to do so by replacing the initial Truth-in-Lending disclosure and Good Faith Estimate with a new form: a Loan Estimate. And it replaces the final Truth-in-Lending disclosure and HUD-1 settlement statement with another new form: the Closing Disclosure.

Both new forms are shorter than their predecessor forms so they should be easier for consumers to understand. The Loan Estimate explains the key features of the mortgage loan and its costs and risks. It must be provided to borrowers no later than three business days after the borrower submits a loan application. This is defined as the date when the lender receives the borrower’s name, income, Social Security number, property address, estimated value of the property, and amount of financing sought.

The Closing Disclosure, meanwhile, provides all the transaction details, including the loan terms, fees and closing costs. It must be provided to borrowers at least three days before the closing. If there are any significant changes to the loan terms — like a change in the APR or the loan product itself or the addition of a prepayment penalty — the three-day period starts over. The hope is that by providing borrowers with more detailed information several days before they get to the closing table, the closing process will go a little bit more smoothly and quickly.

All mortgages for which loan applications are received after October 3, 2015, will be subject to the new TRID disclosure rule except home equity lines of credit, reverse mortgages, and mortgages secured by a mobile home or dwelling that’s not attached to real property. The Loan Estimate and Closing Disclosure forms can be delivered to borrowers in person or via postal mail or email.

Possible Impacts of TRID

TRID represents one of the biggest changes to the mortgage application and approval process in decades, and its impact could be dramatic. For example, if only 10 percent of mortgage closings have issues or delays due to TRID, this would affect up to 40,000 transactions per month, according to the National Association of Realtors®.

During the first few months after TRID takes effect, most lenders will probably take a little extra time to make sure they comply with the new disclosure rule. This could extend the time required for borrowers to obtain a mortgage and thus push back closing dates, which could in turn delay their move into a new home.

We’re interested in hearing from you. What impact do you think the new disclosures will have on lenders, real estate agents and borrowers? Send me an email at steven@lendtrade.com.