Neil B. Garfinkel is a managing partner in Abrams Garfinkel Margolis Bergson LLP, a New York-based, full-service law firm that has a special focus on compliance and licensing for mortgage brokers and bankers, loan document preparation, mortgage closings, pay-off closings, and collateral reconstruction in the state of New York.
MortgageOrb recently interviewed Garfinkel to get his inside perspective on the latest developments in the mortgage industry – including how existing and proposed legislation is affecting the real estate and mortgage markets in New York and nationwide.
Q: New York State has seen a recent uptick in residential foreclosure volume – what, in your opinion, are the factors keeping the foreclosure rate elevated in New York? How would you say New York stacks up against other judicial states, currently, in terms of foreclosure timelines? What recent legislative, administrative or judicial actions do you think had the most impact on the current timeline situation and why? What do you think the state system should do to get things moving along faster?
Garfinkel: New York currently has one of the longest foreclosure timelines in the U.S. According to some reports, it takes an average of three years from the date of the first missed payment until the home is finally sold. This delay in the foreclosure timeline is a large contributing factor to the uptick in residential foreclosure volume in the state. Although other states with shorter timelines have moved past the financial crisis, New York is still seeing the effects. There are homes that should be done with the process but that are still being foreclosed upon. This is evidenced by the current low foreclosure rates in states that were hit hardest during the financial crisis, such as California and Arizona.
One change in legislation that could speed up the process would be altering the requirement that the homeowner and lender must have a good faith negotiation during what is called a settlement conference. This requirement is intended to give the lender an opportunity to save the home. One of the reasons why this provision is problematic is that it does not define “good faith” or impose any fees for failure to negotiate in good faith. Former New York Superintendent of Financial Services Benjamin M. Lawsky had proposed that negotiating in good faith could be defined as arriving at the settlement conference “on time … with full authority to settle the case [a]nd with the paperwork required by the court.” Clarifying this rule would likely speed up the process significantly.
Q: At the same time, home prices recently started showing signs of stronger recovery in New York – what would you say are the factors leading to this? Is it a lack of supply, or is there more to it than that? Do you feel cash buyers/foreign buyers are keeping home prices artificially high? If so, what impact is this having on affordability and first-time home buyers?
Garfinkel: I believe that a combination of a lack of inventory, a strengthening economy and low interest rates have all contributed to the rise in home prices in New York. These factors are clearly making it difficult for first-time purchasers to afford homes in and around New York City. I do not necessarily think that cash/foreign buyers are artificially keeping home prices inflated. Many of these purchasers are in the market for New York’s ultra-luxury properties, which is a market that exists largely outside of the general New York real estate market.
Q: What’s your take on the impact of the Consumer Financial Protection Bureau’s (CFPB) new TILA-RESPA Integrated Disclosure (TRID) rule on the mortgage industry so far? How is it affecting lenders in New York? Do you think all of the effort lenders have made in implementing TRID will be worth it, from a consumer protection/education perspective? Do you think the industry will successfully adapt to TRID?
Garfinkel: In the first few months, TRID slowed down closings mostly because lenders were learning how to create the closing disclosure (CD) and use their new systems. In comparison with the HUD-1, it takes significantly longer to receive a final CD because there is more back and forth between the bank attorney/settlement agent and the lender in order for the CD to be correctly completed. For example, the buyer’s and seller’s attorneys have to work on final numbers much earlier with regard to the adjustments on taxes, maintenance, water, etc. Also, real estate brokers now have to provide additional information to the bank attorneys. This has all led to a slowed-down closing timeline.
From a consumer protection/education perspective, I believe that TRID will ultimately have been worth the effort made in implementation. This is largely because lenders are sending out the CDs prior to closing in compliance with TRID requirements, and thus, buyers are receiving their closing costs and fees ahead of time.
I believe that the industry will successfully adapt to TRID. This is not the first time the industry has adapted to a change regarding closing costs.
I do not believe that TRID will lead to a permanent elongation of the closing timeline. Lenders will get more comfortable with the process and with generating CDs. Also, although closings have to be scheduled further out, it should hopefully prevent the end-of-the-month closing/funding rush so that closing departments and bank attorneys/settlement agents are not swamped at the end of every month. Instead, closing departments will have an even flow of closings throughout the month.
Q: Based on recent reports, a high percentage of loans have TRID defects. Although these initial loans can be “cured,” and the CFPB has said it will honor an informal “grace period” for enforcement, do you think TRID will eventually result in some serious enforcement actions down the road? And what about investor concerns over TRID defects – how can those be addressed?
Garfinkel: Yes, it seems likely the CFPB will pursue enforcement actions against lenders for violations of TRID following the expiration of the “grace period.” Based on what we’ve seen from the CFPB in other areas, it is certainly likely that enforcement actions related to TRID could include severe penalties and fines.
Unfortunately, TRID did not address many situations and has led to inconsistent interpretations. The cure period for tolerance violations is generally 60 calendar days, but because of the uncertainty surrounding enforcement actions related to TRID, many investors do not permit any cures; if the closing documents are defective, they will not purchase the loan. Until we see how the CFPB handles violations of TRID, this is unlikely to change.
Q: We see marketplace lenders causing major disruption in the mortgage lending space – however, the CFPB and other agencies have issued warnings to consumers when dealing with marketplace lenders to make sure consumers know what they are getting into. How disruptive do you think these new online-only lenders will become, moving forward? Do they represent a serious (competitive) threat to traditional lenders?
Garfinkel: Yes, marketplace lenders definitely represent a serious and competitive threat to traditional lenders. Marketplace lenders are able to reduce overhead costs by operating primarily online. Reduced overhead costs translate into reduced costs to the consumer. Further, these companies generally develop easy-to-use online loan application systems that appeal to today’s consumer. This culture of innovation that exists in many online start-ups is likely to contribute to increased competitiveness.