When Dodd-Frank legislation mandated the Consumer Financial Protection Bureau (CFPB) to model disclosures that combined and integrated the Truth-in-Lending and RESPA forms, no one expected a 1,900 page rule.
TRID (TILA-RESPA Integrated Disclosure Rule) goes far beyond integrating forms. It creates various new regulations governing the application and closing process, and leaves the lender ultimately responsible for any errors or violations.
It will change the way real estate agents, title companies and lenders do business; and it will definitely take some time to get used to.
The lending industry takes this rule very seriously, and they should. Since the creation of the CFPB in 2011, the industry has paid billions of dollars in fines.
The average fine in 2014 was just under $280 million dollars, not to mention a fine levied on one mortgage servicer alone in the amount of $2.6 billion dollars.
There has been quite a bit of controversy over the fact that lenders may no longer allow the title company to prepare the settlement statement (being renamed the Closing Disclosure).
Since the lender will be held accountable by the CFPB for the accuracy of the document, lenders cannot put their shareholders, employees and lending institutions at risk by taking responsibility for the actions of others.
Timing is Everything!
Rushed closings will be a thing of the past. The timing requirements under the rule sends a message loud and clear to the industry, in that it’s going to take longer to close a transaction. There’s no way to get around it. Writing a contract with an expiration date of 30 days, no matter how strong the buyer, will only invite problems.
The minimum contract period should be 45 days. You might ask, why an additional 15 days when we are only talking about a 3 day waiting period?
The rule has various timing requirements, not just the 3 day required period between the delivery of the Closing Disclosure and the consummation.
For instance, if there is a change that requires a revised Loan Estimate (the Loan Estimate replaces the Good Faith Estimate and initial Truth in Lending), the borrower must receive the revised Loan Estimate no later than 4 business days prior to consummation, and cannot receive a revised Loan Estimate on or after the date the Closing Disclosure is delivered.
If the Closing Disclosure is found to be inaccurate before consummation, a corrected Closing Disclosure must be provided at or before consummation. In that case, the borrower has the right to review the Closing Disclosure one business day prior to consummation.
If the borrower chooses to change their loan product, make a change in the terms resulting in an APR increase of 1/8 of one percent for a fixed rate loan (1/4 of one percent for an adjustable rate loan), or adds a prepayment penalty; a new three day waiting period is required.
Keeping in mind that certain changes trigger revision of the Loan Estimate or the Closing Disclosure, this in itself could add additional days to the process.
If the Closing Disclosure is mailed, it is considered received in 3 business days, and then the 3 days to close waiting period starts.
Is the Pre-Approval Really Dead?
Under the rule, the definition of an application will change. This has many lenders concerned that pre-approvals could be problematic.
Six items will be required to constitute an application and trigger the delivery of the Truth in Lending and Good Faith Estimate. They are:
- Consumer’s name
- Social Security number to obtain a credit report
- Property address
- Estimate of value
- Loan amount sought
• (Currently ‘whatever else the lender deems necessary to make the credit decision’ is included, but this item goes away under the new rule)
If the borrower is truly seeking a pre-approval, and has not yet found a property, a property address is not available. Therefore, the lender has not collected the required six items, and an application is not triggered.
An application will be triggered if the property address is disclosed to the lender, and the lender will be required to issue the Loan Estimate. However, this could become a problem if the buyer is shopping rates and not ready to make a formal application.
The lending industry has been saddled with regulation after regulation as a result of Dodd-Frank. The cost of implementation of these various rules has been tens of millions of dollars.
We have gotten through the others, and we will get through this one. But this rule will require a joint effort far beyond what has been required in the past.
Remaining calm and patient with the process will make transactions less stressful for all parties, especially the consumer.