Whether you are a buyer or a seller, TRID is going to affect your future real estate transactions beginning October 3, 2015. So what is it and why should you care?
If you don’t want to read this admittedly long (two part!) detailed discussion, here are the highlights and practical effects of the new TRID regulations:
- The Truth-In-Lending-Act Real-Estate-Settlement-Procedures-Act Integrated Disclosure (TRID) requirements apply only to the typical “closed-end” consumer mortgage loans¹. It will not apply to cash purchases, home equity lines of credit, reverse mortgages or mortgage secured by mobile homes or other personal property not attached to land.
- Two new forms will replace four old forms. The “Loan Estimate” replaces the initial Truth-in-Lending Statement (TIL) and the Good Faith Estimate. The “Closing Disclosure” will replace the final TIL and HUD-1 Settlement Statement.
- Borrowers must receive the “Loan Estimate” disclosure within 3 business days of submitting a complete application, and will then have 7 business days to review the disclosure before the lender can start processing the loan.
- Borrowers must receive the “Closing Disclosure” a minimum of 3 business days before closing.
- All required documentation – including appraisals, surveys, proof of insurance, etc. – will need to be submitted to the lender a minimum of 7 business days prior to the closing date.
- Because of these new required delivery and review periods, your real estate sales specialist is going to recommend that purchase contract closing dates be at least 45 days when the buyer is financing their purchase.
- Buyers and Sellers will want to avoid any last minute changes to changes to the terms of the contract – especially changes to the closing date – because these could trigger a reset of the disclosures, and the delivery and review periods.
- Contract price adjustment due to low appraisals or inspections will trigger a “change of circumstance” and therefore a revised Loan Disclosure to be delivered within 3 business days.
- The Consumer Financial Protection Bureau offers a Your Home Loan Tool Kit as part of their “Know before You Owe Mortgage” initiative to help buyers understand the changes that are a part of TRID and the overall process.
A little bit of background
On July 21, 2010, the Dodd–Frank Wall Street Reform and Consumer Protection Act (Pub.L. 111–203, H.R. 4173) – a set of sweeping financial regulatory reforms – was signed into federal law. As part of those reforms, “in November 2013, the Consumer Financial Protection Bureau (CFPB) integrated the Real Estate Settlement Procedures Act (RESPA) and Truth in Lending Act (TILA) disclosures and regulations. Any transaction involving a mortgage will use new CFPB disclosure forms”² starting October 3, 2015.
Until now, at the time of application borrowers would receive a “Truth-In-Lending” statement which was supposed to disclosure the terms of the loan and its associated costs. Then, at the closing table, the borrower was given the “HUD Settlement Statement” which looked nothing like the “Truth-In-Lending” statement. After October 3rd, those two documents will follow the same format so it will be easier for the borrower to compare and note any changes.
The acronym for this change is TRID, and it stands for the “Truth-In-Lending-Act Real-Estate-Settlement-Procedures-Act Integrated Disclosure.” In plain English, it simply means that TRID combines four documents into two, and changes their names to the “Loan Estimate” and the “Closing Disclosure”.
TRID also has specific requirements about when and how the borrower must receive each of these disclosures. The Loan Estimate must be delivered to the borrower within 3 business days of the borrower providing the basic loan application information (including a property address) and then 7 business days before the lender can start the mortgage approval process (“Consumption Period”) to allow the borrower time to review the Loan Estimate. The Closing Disclosure must be delivered to the borrower a minimum of 3 business days prior to the closing.
That was the easy part
There is an English saying – “the devil is in the detail.” That will certainly apply to TRID as it will be the small details that, if overlooked, will cause serious problems. For instance, when has the “application” been received for purposes of triggering the 3 business day delivery deadline for the Loan Estimate?
The Loan Application will be deemed received as soon as the lender has all six of the following pieces of information:
- The borrower’s name
- The borrower’s income
- The borrower’s social security number
- The property address to be purchased
- An estimate of the value of the property
- The mortgage loan amount
Another key detail is the definition of “business days.” Most of us would assume that Saturdays are not a business day, but under TRID a “business day” means all calendar days except Sundays and the legal public holidays. Saturdays are a “business day”… unless the lender is normally closed to the public on Saturdays. The devil is in the detail.
The method of delivery will also affect all of these deadlines. Acceptable forms of delivery include hand delivery, courier, regular mail, regular email, or secure e-delivery – but different forms of delivery will have different deadlines. If the Loan Estimate or Closing Disclosure is hand delivered or sent by secure e-delivery, the 3 business day rule applies. But if the disclosures are sent via regular mail or regular email, then the Loan Officer must send the forms a minimum of 6 business days ahead of the deadlines.
Perhaps the biggest take-away from all of this is that your real estate professionals – lender, title agent, REALTOR©, appraiser and others – will need to have a very cooperative working relationship with each other and all will need to have a solid understanding of the new Truth-In-Lending-Act Real-Estate-Settlement-Procedures-Act Integrated Disclosure (TRID) requirements.
Next month: TRID Part 2: Disclosure Tolerances