We recently placed a poll on the AppraisalPort website that asked: “Do you plan to raise your basic fees due to the new TILA-RESPA Integrated Disclosures rule (TRID)?” I was a little surprised to see that the number one answer, with over 50 percent of the vote, was “What’s the TILA-RESPA Integrated Disclosures rule?” Based on that answer I thought it would be beneficial to give you a brief, and hopefully not too boring, overview of what this rule is and what it could mean to appraisers.
First, this isn’t a rule aimed at appraisers in any way. It is something that applies directly to the lenders and consumers. However, lenders are appraiser’s clients, so there can always be some unintended fall out for appraisers whenever lenders have to make procedural changes. This rule is part of the Consumer Financial Protection Bureau’s (CFPB’s) “Know Before You Owe” initiative. TRID consolidates four existing disclosures required under the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA) into two forms: a Loan Estimate that must be delivered or placed in the mail no later than the third business day after receiving the consumer’s application, and a Closing Disclosure that must be provided to the consumer at least three business days prior to consummation. These changes are expected to impact the length of time in which closings are conducted and allow for little or no last-minute changes to the transaction. Basically, the loan cost estimating and closing processes will be changing soon.
TRID applies to most closed-end consumer credit transactions secured by real property. However, some specific categories of loans are excluded from the rule. Specifically, the rule does not apply to HELOCs, reverse mortgages or mortgages secured by a mobile home or by a dwelling that is not attached to real property.
Many lenders are currently in a big scramble trying to figure out how they are going to handle and properly implement all these changes. The CFPB released the final TRID rule in November 2013 and set a newly updated effective date of October 3, 2015 giving the affected industries nearly two years to modify their processes, operations and systems so they are able to comply with the new regulations. However, even with this much warning many lenders think they are still going to have difficulties meeting the October deadline. Some are asking the CFPB to extend the deadline to allow for more implementation time. As of this writing the deadline still stands.
So as an appraiser why should you even care about TRID? As stated above this rule has nothing to do with how you complete your appraisal assignment. However, in some cases it may have an effect on something near and dear to you – your fee.
Before we get there, there is a little background needed. The lender is obligated to provide the consumer with the Loan Estimate within three business days after receiving a loan application. The loan application is not what you and I think a loan application is, but just 6 pieces of information: “the consumer’s name; the consumer’s income; the consumer’s social security number to obtain a credit report; the property address; an estimate of the value of the property; and the mortgage loan amount sought. Based on those few pieces of information the lender needs to give a disclosure of the likely loan terms and the estimated costs. One of those estimated costs is the appraisal fee, which is in the category of costs where the lender’s estimate must be as close as possible to the actual cost of the appraisal. That means they cannot charge the consumer any more for the appraisal than the estimate they provided. So, for the appraiser, there are a couple of scenarios where this process change may be an issue. One will be when you accept an assignment for an agreed upon fee and then discover that the property is much more complex than you first thought and you want to go back to the lender for a fee increase. A similar situation will arise when the lender offers an assignment which you immediately recognize as atypical and complex at a typical fee rate. With TRID once the loan estimate is given to the loan applicant, the lender will no longer be able to go back to the applicant and tell them the appraisal fee just went up. Due to the short amount of time a lender has in which the loan estimate has to be delivered to the applicant, in most cases it will have been delivered before you ever get offered the assignment.
Even with those potential problems, this isn’t something appraisers should panic over. First, the rule doesn’t allow the lender to go back to the borrower for an increased appraisal fee, but that doesn’t mean lenders can’t cover the difference between a higher actual appraisal fee and the disclosed appraisal fee themselves. Second, and this brings us back to our original poll question, appraisers can work with their lender clients to help ensure lenders understand your fees for complex assignments. Finally, your usual market area will have a lot to do with how much this affects you. If you are in an area where the properties are very homogeneous and have about the same level of complexity, you may never notice anything different. However, if your area varies greatly in the size and complexity of the properties, you may face some of these challenges.
Whatever happens, it looks like it will be sooner rather than later (remember the new October 3, 2015 start date)*. No doubt the lenders will be working overtime trying to get any wrinkles out of new systems they have had to implement to meet all the requirements. As with every change this industry has been through, time will help smooth out the process and hopefully your appraisal practice will experience minimal (or no) issues during this big transition for the lenders.