The Truth in Lending and RESPA integrated disclosure, affectionately abbreviated as TRID, is now the official “Rule of the Land”. Effective October 3rd (actually TODAY because October 3rd was a Saturday), new rules come into effect that will change the way consumers apply for a loan and get financing for a home. Depending on the fence you stand on will determine whether you see this as triumph or tragedy.
A brief history: In 2010, the congress passed the Wall Street Reform Act, more frequently referred to as Dodd/Frank, so named after is main sponsors Senators Chris Dodd (D) and Barney Frank (D). This law created a wholly separate branch of government called the Consumer Financial Protection Bureau a.k.a. the CFPB (www.CFPB.gov). I say new branch because the CFPB functions independently without congressional oversight, budgetary restraints, or judicial review. They need only desire money and simply invoice the taxpayers, who then must pay the bill.
Dodd/Frank was a response to the financial crisis of 2008. Some say the law was draconian while others say it did not go far enough. The gist of the law and subsequent rules is consumer centrism. We have entered the age of the consumer, and the consumer is the indisputable king. The law creates a host of new rules enumerated by the CFPB. Among these new rules are the Qualified Mortgage, the “Ability to repay”, and now finally TRID. For a more complete roundup of changes, please see my previous blog posts, or visit CFPB.gov.
With the implementation of TRID, several forms go away. The Good Faith Estimate or GFE is now replaced with the Loan Estimate, and the ubiquitous HUD-1 is replaced by the Closing Disclosure. Furthermore, the closing date is no longer called as such, but rather referred to as “consummation day”. An easily overlooked, but dramatically important wrinkle is the addition of a 3 day review of the Closing Disclosure prior to closing. This 3 day review cannot be waived. Again, it CANNOT be waived. The closing disclosure must be IN THE HANDS of the consumer 3 business days prior to closing.
The triumphs many see in this law are consumer protections against predatory lending practices, and the liability lenders expose themselves to if they do not comply with CFPB rules. That said, lenders fearing liability may decline an otherwise suitable borrower for fear of being sued down the road should the borrower fail to pay the money back (known as “Loan Default”).
With TRID, the consumer (read “borrower”) will be offered the opportunity to shop rates on things such as title insurance and homeowners insurance. In reality, consumers have always been able to shop these items. It is now a front and center disclosure that they may shop these rates. One problem is shopping title insurance. Most do not understand what it is, let alone what it SHOULD cost, and where to begin to shop for rates. In reality, there are only 2 major insurers to choose from for title insurance.
In many states, title companies run the closing show. In GA, attorneys run the show. States where attorneys run the show will see the most changes to the closing (read “consummation”) process. In GA, the attorney was responsible for the HUD. With TRID, the responsibility of the HUD (read “Closing Disclosure”) is the responsibility of the lenders. In fact, on a nationwide scale, the LENDER is now responsible for the creation of the final HUD/Closing Disclosure. Add the new mandated 3 day review period to the final HUD/Closing disclosure with the LENDERS new responsibilities, and you begin to see some of the tragedies that may befall the real estate industry.
There are several trigger points that will require new HUD/Closing Disclosures to be resent to the borrower. If one of these triggers are pulled, a lender must re-issue the HUD/Closing Disclosure and a new 3 day period must be observed. If you are the borrower, this could create problems for you and if you are the seller, this could create problems as well.
Here is a scenario: Buyer receives a final Closing Disclosure on the home they are purchasing, yet the home they are selling has been delayed. The delay causes the buyer to lose their loan rate lock, causing a change in the loan rates. In this case, the lender would have to re-issue a NEW closing disclosure, mandating a new 3 day waiting period and delaying their new home purchase. This creates a domino effect. The seller, who was planning on using the proceeds to buy a home, now has their closing delayed, and so on, and so on…
Kudos to the consumer, who is now the center point of the lending process. Kudos to the lenders, who have moved mountains to get to comply with the new processes. Kudos to the attorneys, who have moved mountains to accommodate these new changes. Pitty the poor sellers of the homes these buyers are buying and lenders are lending for. It is the seller who is in the dark, and considered an after thought, until they become a consumer of money for the purchase of their new home.
An attorney friend of mine who has been a real estate closing attorney since before RESPA was implemented in 1980 said “RESPA took 2 years to settle down once implemented”. 2 years from now, we will know for sure if TRID was a triumph or tragedy. Until then…hold on as the ride may get a little bumpy!
Hat tip The Professional Wingman for the pix – click HERE to visit.
AREEC's Book of Everything 