The Countdown to October 3rd and TRID Implementation- Know Before You Owe

As October 3, 2015 (yes, it’s a Saturday) looms around the corner, the real estate industry- realtors and brokers, lenders, lawyers and title agents- are being bombarded with information galore.  This post is going to take a look at some of the timing issues that will dramatically change once the new TRID rules come into force and effect.

A Primer- What is TRID and What does it accomplish?

TRID or TILA-REPSA Integrated Disclosure is the “marriage of the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act of 1974 (RESPA).  Under the current rules, a buyer will place an offer on a property, the contract is negotiated and then the buyer requests a loan from a lender.  The borrower then receives a good faith estimate (GFE) and at closing a truth-in-lending disclosure (TIL).  Under the new TRID rules, the GFE and the TILA are combined into one disclosure which is now called the Loan Estimate.  The final TIL and HUD-1 Settlement Statement will be replaced by a five page Closing Disclosure.

Which Deals are affected by the TRID rules and How will TRID affect the timing of Closings?

The new TRID rules apply to most closed-end consumer mortgage loans that are secured by a one to four unit dwelling attached to real property. The rules don’t apply to:

  1. All cash transactions;
  2. home-equity lines of credit (HELOCS);
  3. reverse mortgage loans;
  4. mortgage loans secured by a mobile home;
  5. creditors who write five or fewer mortgages a year; and
  6. Commercial transactions and Loans
The new rules also change the timing of closings or “Consummation” as it is defined in the rules, as well as the information exchange necessary amongst buyers, realtors, lawyers/settlement agents, lenders and sellers.  Most lenders have been advising that approvals will now take between 45 days and 60 days given the timing of the disclosures to the borrower and the “waiting periods” established in the rules.  Currently the rules provide for wait times in order to consummate a transaction:
  1. For refinances, the 3 day right of rescission was not impacted and remains in place;
  2. Following delivery of the required information from the borrower, a lender has 3 business days to deliver a Loan Estimate (LE) to a borrower;
  3. Once the LE is issued, the lender is bound by the terms of the LE for 10 days;
  4. Once an LE is ACCEPTED by a borrower and the borrower confirms with the lender they intend to proceed, then verification of the documentation begins- NOT BEFORE!!;
  5. Once a loan is approved and is ready to be closed, a Closing Disclosure (CD) must be delivered to the buyer/borrower at least three (3) business days prior to consummation of the transaction!  If the CD is not delivered timely, the closing can be delayed- if the CD is delivered by regular mail rather than hand delivered or via a courier with a SIGNED receipt by the borrower, the rules require that three (3) additional days be counted towards the delivery estimate- so 3 really means 6!  This includes email delivery.

All these changes mean that all the parties to the transaction need to communicate early on in the process and often in order to avoid additional delays.

It is critically important to set the stage for listing a property and letting sellers know that after October 3, closings will change dramatically and loan processing will take much longer than normal.  Work on building extra time into contracts- at least 15 to 30 days, so that contracts and mortgage rate locks do not expire.  Also, this will help set the stage so that expectations of both buyers/consumers and sellers are positive versus a negative closing experience because of “delays.”

Upcoming Changes to FAR/BAR Contract

There are changes coming to the FAR/BAR Contract form that address the new TRID rules.  These include a) the timing for financing, b) extensions of time to closing as a result of compliance with CFPB requirements, c) greater inspection periods, d) changes to delivery of due diligence items (prior surveys and prior title work), e) appraisal contingencies, and f) insurance riders.

For now, all loan applications that are received by a lender BEFORE October 3, 2015 fall under the old rules for closing and disclosures.  Any loan applications ON OR AFTER October 3, 2015 must comply with TRID.

We look forward to assisting you and answer any questions you may have.