After it jumped up by three full days in November the average time to close a first mortgage loan stabilized in December at 49 days. The November increase had been attributed to unfamiliarity with the new Truth in Lending Disclosure Rule (TRID) which went into effect for loans for which applications were received after October 3.
Ellie Mae’s Origination Insight Report showed that purchase mortgage closings did take one day longer, 50 days, to close in December but that was offset by a drop in closing times for refinances from 49 to 47 days. The average time to close FHA and conventional loans remained largely unchanged at 49 days, while for VA loans it increased from 50 to 52 days.
Jonathan Corr, president and CEO of Ellie Mae said that the company’s customers are certainly impacted by TRID. He commented, “While the time to close loans remained consistent from November, the 49-day cycle is still a week longer than the time to close at this same time last year.”
Now the mortgage industry is sounding a bigger alarm, claiming some investors are refusing to buy certain loans once they close because of potential compliance failures. The bottleneck is happening when lenders immediately try to sell loans in the secondary market. The fear is that some lenders could get stuck with loans if investors refuse to buy them, causing potential liquidity problems, especially for independent mortgage banks.
The first inkling of trouble came when Moody’s Investors Service warned in early December that several third-party review firms found more than 90% of the first pipeline of loans that closed after Oct. 3, when the rules took effect, had compliance violations. The findings were based on reviews of roughly 300 loans from a dozen lenders, said Yehudah Forster, a Moody’s vice president and senior credit officer.
Mark Mason, the chairman and chief executive of $5 billion-asset HomeStreet Bank in Seattle, said some nonagency jumbo loans, custom home construction loans, and down-payment-assistance loans offered through state housing finance agencies are not being purchased by investors. However, it is unclear how widespread the issue is.
It is crucial that the lending team you’re working with be well versed in navigating TRID and work as a team, helping to guide all parties to be compliant and close as quickly as possible. Make sure to discuss this with your existing lending partners and find out what their closing turn times are on a weekly basis as spikes in volume can alter performance quickly.