QUESTION
We realize the TILA/RESPA rules are complex. An affiliate of ours is a real estate company. So, we are wondering how the new rules will
affect real estate agents. Do you have a list of items that we consider
important for real estate agents to know about the TRID requirements?
ANSWER
TRID is a new federal consumer disclosure law that goes into
effect October 3, 2015. TRID will significantly change the way a mortgage
lender discloses to consumers the terms, conditions and closing costs
associated with most residential mortgage loans.
To assist real estate professionals in understanding what
TRID is and how it will affect the residential closing and mortgage loan
process, we have created a “Top Ten List” of things to know about TRID:
1) TRID
stands for TILA-RESPA Integrated Disclosure. TILA stands for Truth-in-Lending
Act and RESPA stands for the Real Estate Settlement Procedures Act.
2) TRID is a federal law which requires mortgage lenders to provide consumers with
certain disclosures during the loan application and closing process. These
disclosures summarize the terms of the loan, such as the interest rate, and the
costs associated with obtaining the loan.
3) There
are two new consumer disclosure forms required by TRID, (i) the Loan Estimate
and (ii) the Closing Disclosure.
4) The
Loan Estimate, or “LE,” replaces the current disclosure forms known as the Good
Faith Estimate and initial Truth-in-Lending disclosure (the “TIL”). The purpose
of the LE is to give consumers a better, more clear understanding of the terms
of their loan and the costs associated with such loan. With more complete
knowledge the consumer can then, in theory, shop for and make an informed
decision about the mortgage product that best fits their needs.
5) The
regulatory body responsible for implementing and overseeing TRID, the Consumer
Finance Protection Bureau (the “CFPB”) refers to the LE as a “Know before you
Owe” disclosure.
6) The
Closing Disclosure, or “CD,” replaces the current disclosure forms known as the
HUD-1 Settlement Statement and the final TIL. The purpose of the CD is to
finalize information that appears on the LE, including the mortgage terms and
the projected payment amount, as well as to summarize the closing costs incurred
by the purchaser and seller.
7) TRID
imposes certain dates by which the LE and CD must be delivered to a
borrower. The Loan Estimate must be
provided to the consumer by the third business day after receipt of a completed
loan application and at least seven business days prior to the closing of the
loan. The Closing Disclosure must be delivered to and received by the borrower
at least three business days prior to “consummation” of the transaction
(usually the closing of the transaction). The three business day period can be
referred to as the “Waiting Period” and a closing cannot occur until the
conclusion of the Waiting Period.
8) There
are three events that require a re-disclosure of the CD and a new Waiting
Period prior to closing. They are:
I. An increase in the annual percentage rate (APR) by more than 1/8 of a percentage point for a fixed rate loan or 1/4 of a percentage point for an irregular transaction, such as a variable rate transaction;
II. The addition of a prepayment penalty; and,
III. Changes in the loan product, such as from a fixed rate to an adjustable rate loan. Although the Waiting Period will not be required to commence again for changes other than these three events, the lender is still responsible for giving the borrower a new CD if there are any changes to the CD after it is presented to the borrower.
9) The
CFPB recently announced that it will be issuing a proposed amendment to delay
TRID’s effective date from August 1, 2015 to October 3, 2015. TRID will apply
to all applicable mortgage applications taken on and after October 3, 2015.
10) Real
estate agents are an integral part of the closing process and will play an
important role in facilitating the implementation of TRID and its various
delivery requirements. More
specifically, real estate professionals should be prepared to do the following
things:
I. Educate consumers and professionals with respect
to TRID and its various elements,
II. Set reasonable expectations for all relevant
parties regarding potential closing delays,
III. Assist the various professionals associated with
the closing process in creating a collaborative work environment so that all
closing costs can be provided to the lender in order to prepare the CD, and
IV. Understand the situations which require a new
Waiting Period as well as situations, such as adjustments necessitated by a
pre-closing walk-through that do not require a new Waiting Period.
Neil Garfinkel
Executive Director
Realty and Title Services Compliance Group
Director/Legal & Regulatory Compliance
