TILA And RESPA And CFPB, Oh My!
Thursday, May 28, 2015
Orlando REALTOR® | May/June 2015
REALTORS® are used to lots of acronyms. But are you prepared to use the new TRID?
TRID stands for TILA RESPA Integrated Disclosure. The TILA-RESPA Integrated Disclosure Rule falls under the auspices of the Real Estate Settlement Procedures Act (Regulation X), and the Truth in Lending Act (Regulation Z), also known as the RESPA-TILA rule.
By Grant Simon
Major changes are coming to real estate transactions starting August 1st, 2015: Any transaction involving a mortgage must use the new disclosure forms created by the Consumer Financial Protection Bureau (CFPB).
The Truth-in-Lending Act/RESPA Integrated Disclosures (TRID) creates timing requirements for disclosures that lenders need to make to consumers. Not only will the new forms be used in transactions, the relationship between the lender and other parties like the closing agent and the mortgage broker is now altered because the lender can be liable if certain costs exceed the tolerance limitations set forth in the TRID. In addition, the changes may also delay a transaction if certain changes occur near closing, as TRID requires a three-day waiting period prior to closing and certain changes may cause lender delays.
Under Dodd-Frank, the Consumer Financial Protection Bureau was directed to simplify, streamline, and integrate several mortgage disclosure forms that lenders are required to provide consumers into two new forms. The goal of the integration is to use clear language and design to make it easier for consumers to locate key information, such as interest rate, monthly payments, and costs to close the loan.
The new rule combines and replaces the Good Faith Estimate (GFE) and REGZ-TIL (Truth in Lending) with the new Loan Estimate (LE) form. The Closing RegZ (Truth in Lending) and HUD-1 (HUD-1 Settlement Statement) forms have been combined to create the new Closing Disclosure (CD) form.
TRID also introduces new terms such as TIP (Total Interest Percentage) and Consummation which occurs when the buyer signs the closing documents.
When does it go into effect? The final rule goes into effect on after August 1, 2015. Please note that there will be a transition period, however. Applications taken prior to August 1, 2015 that will close after August 1, 2015 will be closed on the HUD-1 and TIL.
The TILA-RESPA rule applies to most closed-end consumer credit transactions secured by real property, but does not apply to:
• Reverse mortgages; and
• Loans secured by a mobile home or by a dwelling that is not attached to real property.
There is also a partial exemption for certain transactions associated with housing assistance loan programs for low- and moderate-income consumers. (§ 1026.2(h))
Certain types of loans that are currently subject to TILA but not RESPA are subject to the TILA-RESPA rule’s integrated disclosure requirements, including:
• Construction-only loans; and
• Loans secured by property of 25 acres or more and loans secured by vacant real property.
What’s In It For Me?
TRID will change the customer experience and it will ultimately help you stay productive, profitable, protected, and professional.
No longer will you be waiting at closing for the closing package to arrive. No longer will the buyer have to guess how much to wire for closing. You will now be able to review the closing disclosure (CD) three days prior to closing as TRID ushers in new timing requirements. The three-day rule is going to create challenges, however, as the lender of record will be verifying receipt of the closing disclosure in the consumers/buyers possession three days before closing.
It has been said that the greater the change the greater the opportunity, and TRID is a great big change. It will require new software, additional training, and a much greater awareness of dates, forms, and figures.
When a consumer is purchasing a home they always want to know the monthly payment and cash to close. The new LE and the new CD provide this information right up front, on page one.
There is also a comparison section on the forms to show the consumer where they will be five years from consummation, so they can look at the transaction from a better financial perspective and understand the amortization of their loan.
Much work is left to be done by the housing finance industry and the real estate community to adapt to the new forms, rules and standards. Let’s all hope for a smooth transition!
Grant Simon, Waterstone Mortage, is a frequent ORRA instructor. He can be reached at email@example.com