Q: I have been hearing a lot about “TRID” lately. Can you tell me what it is and how it will affect the real estate closing process?
A: TRID is a new federal consumer disclosure law that goes into effect October 1, 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:
- TRID stands for TILA-RESPA Integrated Disclosure. TILA stands for Truth-in-Lending Act and RESPA stands for the Real Estate Settlement Procedures Act.
- 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.
- There are two new consumer disclosure forms required by TRID, (i) the Loan Estimate and (ii) the Closing Disclosure.
- 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.
- 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.
- 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.
- 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.
- There are three events that require a re-disclosure of the CD and a new Waiting Period prior to closing. They are: (1) 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, (2) the addition of a prepayment penalty; and/or (3) 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.
- The CFPB recently announced that it will be issuing a proposed amendment to delay TRID’s effective date from August 1, 2015 to October 1, 2015. TRID will apply to all applicable mortgage applications taken on and after October 1, 2015.
- 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 and the situations, such as adjustments necessitated by a pre-closing walk through, that do not require a new Waiting Period.
- The Legal Line Question by:
Neil B. Garfinkel
REBNY Broker Counsel
Partner-in-charge of real estate and banking practices at