As you know, the mortgage lending world was turned on its head last October with the implementation of the TILA-RESPA Integrated Disclosure. Indeed, the web has been inundated with TRID advice and analysis. Despite the coverage, there is one interesting development that’s been largely ignored: the Loan Estimate is not changing borrowers’ behavior. We’ll tell you why and explain what it might mean for the future of TRID.
For those of you readers out there not familiar with TRID, we’ll give you a quick refresher. If you’re already an industry pro, please skip down to the section “Why Aren’t Buyers Using the Loan Estimate for Comparison?”
Since the Dodd-Frank Act became effective in 2010, the Consumer Financial Protection Bureau, or CFPB, has developed new requirements for the making fee estimates and disclosures prior to closing on a mortgage. Previous estimate and disclosure forms were consolidated, timelines were altered, and borrowers were given more time to compare the Loan Estimate and the Closing Disclosure. Naturally, the CFPB was concerned primarily with consumers, and lenders and loan officers were faced with a steep learning curve to become compliant.
The purpose of the Loan Estimate was to give buyers a more accurate depiction of the costs of a mortgage. Despite the CFPB’s best intentions, neither lenders nor real estate brokers are seeing customers use this tool to compare their options. As they say, you can lead a horse to water, but you can’t make him drink.
After receiving the Loan Estimate, buyers have ten days to search for a better bargain on a mortgage. After that, they must accept or decline the offer. The CFPB recommends that customers compare at least three separate Loan Estimates before choosing one. However,.
According to the chief executive of Quicken Loans, most buyers are not doing this. There has not been an increase in people shopping for Loan Estimates. He explains this may be because the buying process is long and exhausting enough without having to get mortgage estimates from several different lenders. If a company has a good reputation, or has been referred by a realtor or friend, buyers often feel confident they are getting a fair deal.
Paul Skeens, of Colonial Mortgage Group, echoes this sentiment. He says that hardly 5% of his clients utilize the Loan Estimate as a comparison tool. Another mortgage banker from the Seattle area states that he hasn’t heard of a single person who’s gotten a Loan Estimate with the intention of weighing it against another. Just because there is another tool, it doesn’t mean that buyers are taking advantage of it the way the CFPB recommends.
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