Politics & MoneyMortgage

Why consumer protection regulation is necessary — but often useless

The TRID rule is a perfect example of good intentions colliding with reality

I recently bought a house and my experience during that process only confirmed my conflicted view of regulation in general and consumer protection in particular. In short:

1. It’s very necessary.

2. It’s often useless.

My husband and I started looking at houses in December, planning to build. First, we looked at real estate websites to see what things generally cost in the areas we wanted to live in and then talked to several lenders to find out what we would qualify for. I did not have an exact house in mind, so when I filled out an application with one lender and submitted basic financial documents, the form I got back was a pre-approval letter but not an official estimate. 

These actions represent a pretty typical path for today’s homebuyers. They use self-serve options to find neighborhoods and calculate payments and then meet with lenders.

In my case, when we went to talk to the builder they had inventory they were looking to get off the books before the end of the year and were offering deep discounts. We saw a house we loved on Dec. 10 and closed on Dec. 29. With a VA loan!

No one was more shocked than I was at the fast closing. At HousingWire we report regularly on the shortage of housing inventory, lengthy times to get appraisals (especially VA appraisals!) and the numerous other challenges that are part of the closing process. But the builder — who also served as our lender — was highly motivated, and apart from a marathon session of gathering documents from files in our storage, it all went stunningly fast.

During those 19 days between seeing a house and owning that house, there was no time to shop for a better rate or more favorable terms. Yes, my time to close was lightning-fast compared to the 44 days that Ellie Mae pegs as the average time to close, but that was only one factor in when I looked at lenders.

Which brings me to the part about regulations being both necessary but also sometimes completely useless as written, and that brings me to TRID.

The TILA-RESPA Integrated Disclosure rule was conceived as part of the CFPB’s noble goal of giving consumers information about their total loan costs before they signed documents that bound them in a 30-year contract. I can appreciate that. But for all the good intentions behind this rule, it’s just not practical.

Like me, most homeowners are shopping lenders before they even know their property address, so what they are comparing are pre-approvals, not loan estimates. Lenders are not bound by the terms of pre-approval letters and therefore comparing them is not helpful. And it’s in the pre-approval process that they are forming loyalties — or not — with various lenders. I live in the Dallas/Fort Worth metroplex, which is competitive enough that by the time you get a property address you better have a lender all locked in. In fact, you better have them on speed dial. I can only imagine what it’s like for potential buyers in California or in the Seattle area.

When I did get the initial estimate after landing on the house we wanted, it was just one form among many items we were concerned with as we scrambled to provide documentation and deliver earnest money. The thought of starting over at that point with another lender was extremely unappealing.

As far as the closing disclosure, I was happy to be able to review the closing information ahead of time, but three days away from closing I had already packed most of our possessions, scheduled movers, transferred utilities and picked out appliances. Making sure I got the best deal? Not a priority at that point. Most homeowners at this stage have already crossed the event horizon of owning a new house in their minds and nothing short of a huge price surprise would sway them.

So why complain about TRID? Wasn’t it helpful to know about costs ahead of time? Isn’t it a good thing I wasn’t the victim of a bait and switch on the price? Absolutely. That’s why regulation is so necessary. We have to have some guardrails or consumers (and we’re all consumers sometimes) will get taken advantage of.

But I know what lenders had to do to comply with the new integrated disclosure rule and the tradeoff hardly seems worth it. If the whole point was for consumers to shop around for terms and rates once they had the loan estimate, that’s a total non-starter in many housing markets today.

And if the secondary goal was for consumers to try to get a better deal on their own from title and settlement companies once they have the closing disclosure with the fees outlined, it demonstrates not only a failure to understand the way buying a house actually works, but even how human beings actually work.

Three days away from closing I would have paid more money in closing costs if it made the process easier or quicker — I was not looking to add another item to my to-do list. And with very limited knowledge about the industry, what reasonable chance do most consumers have to pick a competent title and/or settlement company that is also going to charge them fewer fees as an individual one-time client than the big lender they usually deal with?

It defies common sense.

At the recent Ellie Mae Experience conference, I attended several sessions on regulatory updates as panels of experts walked lenders through the latest news on TRID, also known as TRID 2.0 or, as one panelist called it, Son of TRID.

The updates from regulators provided some clarity on areas lenders were concerned about, but the fact remains that five years after issuing the rule and almost three years after requiring implementation, lenders are still having to figure out what the bureau meant in the first place. Years and years and lots of money later, it’s still not clear.

Comparing the time, effort and money spent by the mortgage industry to implement the rule with the benefit consumers receive from it in today’s housing market, it doesn’t seem worth it. Not even close.

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