TRID, part of the laws effectuating the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, went into effect on October 1st of this year, after being delayed another two months to accommodate the mortgage-lending industry. “TRID,” already a conglomeration of two acronyms, stands for the “TILA RESPA Integrated Disclosure,” with “TILA” being the “Truth in Lending Act” and “RESPA” being the “Real Estate Settlement Procedures Act.” The Consumer Financial Protection Bureau has been touting TRID as “know before you owe.” So, has it made any difference?
TRID, which applies to most home loans, requires the lender to provide an initial Loan Estimate within three business days of receiving a loan application and not later than four business days before the loan closes. Lenders must then provide the new Closing Disclosure form no later than three business days before closing the loan. This all relates to forms and timing, so what’s the big deal?
The Loan Estimate must be in writing, on the new federal forms and provide a good faith estimate of all credit costs and terms of the transaction. The three days are triggered by the lender’s receipt of six items of information: (1) borrower’s name, (2) income, (3) social security number, (4) property address, (5) estimated property value, and (6) amount of loan requested. The waiting time between the Loan Estimate and closing cannot be waived in the absence of a “bona fide financial emergency.”
The Closing Disclosure combines the closing statements required by TILA and RESPA, replacing the HUD-1 form to which all were accustomed. It also must be in writing and contain the actual terms and costs of the transaction. If the terms materially change, meaning a change in the APR (average percentage rate) by 1/8% or more, changes to the loan product such as to or from an ARM (adjustable rate mortgage) or adding a prepayment penalty, the Closing Disclosure form must be revised and the closing must be adjusted for the three business day waiting period. Again, the three business day waiting period only can be waived by the borrower for a bona fide financial emergency.
The real difference in TRID is that the HUD-1 came from the escrow agent, which is generally the title company in Arizona closings, while the Closing Disclosure must come from the lender. This shifts the control over the closing significantly. Furthermore, lenders are claiming privacy issues prevents them from sharing the Closing Disclosure with the real estate agents involved in the transaction, so the agents cannot monitor and facilitate the closing as they did previously. Some escrow agents are issuing an ALTA closing statement to share the information with the parties and their agents in supplement to the Closing Disclosure, but it cannot replace the new Closing Disclosure.
The long-term impact of TRID is yet to be determined; however houses are closing after TRID’s effective date. There are some best practices to use as a guideline. Where agents used to anticipate approximately 30 days from contract to closing, now agents should be providing 45 to 60 days just to be safe. To expedite closings, the borrower should be pre-qualified for a loan amount before the purchase contract, initial property inspections should be performed prior to an appraisal to include any changes that affect the property value, walk-throughs should be performed a week before closing to include any changes in the Closing Disclosure and the real estate purchase and sale contract should include a provision to extend the closing date to comply with the Closing Disclosure timeframe. “Mail-out closings,” must include at least an extra three days for mailing and “stacked transactions,” where one closing is dependent upon another should be spaced at least a day apart.
My personal experience has included a lender using TRID as an excuse to delay loan approval on a jumbo loan to the point of killing a deal. A mortgage broker should arrange for back-up lenders for such transactions. I also recommend adding a provision to the purchase and sales contract that provides the buyer/borrower another alternative on the financing contingency. Currently, the contract provides that no later than three days before closing the buyer must either: (1) sign all loan documents, (2) deliver loan approval without conditions and advise of date the Closing Disclosure was received from the lender so the closing can be adjusted to comply with TRID, or (3) deliver notice of inability to obtain loan approval and cancel the deal. A fourth alternative would be for buyer to deliver notice that loan approval still is pending and receive an automatic extension of closing for a week or ten days for the lender to complete its analysis. Whether this fourth alternative is accepted would depend on the sellers’ need to close by a date certain as compared to their desire to sell the property to the contracted buyer. Particularly in cases involving jumbo loans, the buyer may be best advised to seek assistance from an experienced attorney.