TRID May Impact Your Real Estate Transactions
BY: RAMENEH K. TORRES, ATTORNEY AT LAW
The Consumer Financial Protection Bureau (“CFPB”) was tasked with integrating the TILA and RESPA to make TRID, which consolidates four existing disclosures into two forms:
Loan Estimate (formerly the initial Truth-in-Lending and Good Faith Estimate)
Closing Disclosure (formerly HUD-1 and Final Truth-in-Lending).
The TRID disclosures are designed to make the loan process more understandable for consumers, and the two disclosures have the same alphabetical breakdown and structure so that the forms can be cross-referenced for ease and simplicity. Furthermore, the forms now look similar to other forms. The main purpose behind the TRID integration is to help consumers shop for the best loan, guard against hikes in charges at closing, and understand future obligations. Communication between REALTORS® and vendors will be more important than ever, and agents will need to talk to loan officers to ensure that clients have smooth transactions.
The Application
Once a loan originator obtains six pieces of information from a
consumer, the application is considered to have been received.
The six pieces of information can be remembered using the
acronym ALIENS:
Address,
Loan amount,
Income,
Estimated value of property,
Borrower’s Name, and,
Social Security Number.
These six pieces of information do not need to be obtained in a
formal manner. They can be sent in an email, text message, or
scrawled on a cocktail napkin. This is important to note because
the lender must send a Loan Estimate within 3 business days of
receiving the application.
Loan Estimate
The Loan Estimate (“LE”) replaces the Good Faith Estimate and the Early Truth-in-Lending. The LE must be delivered, or placed in the mail, by the lender or mortgage broker no later than the third (3rd) business day after receiving the consumer’s application. Ultimately, the actual lender is responsible for the LE, but the Mortgage Broker may provide the LE. Lenders and Mortgage Brokers may not charge any upfront fees for the LE, with the exception of a reasonable fee for a credit report.
The benefits of the Loan Estimate are that there are clearly defined terms and lock status. New features on the LE also include a breakdown of what the interest will be in five years, and the total interest percentage.
There is a seven (7) day mandatory waiting period after receiving the LE before the borrower can consummate the transaction. This waiting period may only be waived if the consumer has a bona fide personal financial emergency that necessitates consummating the transaction prior to the end of the seven-day period. While this will be determined on a case-by-case factual basis, the only examples that have been given by the CFPB of a bona fide personal financial emergency are the imminent sale of the consumer’s home at foreclosure, or imminent bankruptcy.
If the lender makes any mistakes on the LE that are harmful to the lender, the lender cannot change the LE to correct the mistakes. The terms on the LE can only be changed if there are changed circumstances—forgetting something or accidentally using the wrong terms are not considered changed
circumstances, and the lender will be responsible for any difference in the loan amount.
A consumer has ten (10) days to give their intent to proceed upon issuance of the LE. This is being referred to as the 10 day “shopping period,” where consumers have the option to shop lenders while still keeping their options open on any LE issued to them. The CFPB defines “days” as business days. For the LE, a business day considered to be any day in which the creditor is open to the public for carrying out substantially all of its business functions. It will be important for REALTORS® to be aware of the days lenders are open for business, and if certain lenders differ in the days they are open.
If a new LE is needed, (e.g. for a new property), the waiting period starts over. If there is a “changed circumstance” and a LE needs to be revised, the revised LE must be given a minimum of four (4) days before closing. There are several items that cannot increase once locked in on the LE, including: creditor’s or broker’s charges for its own services; charges for services provided by an affiliate; or charges where the consumer is not permitted to shop.
There is a signature line on the LE but the borrower does not have to sign the LE. In fact, even if the borrower does sign the LE it does not mean that they have given their intent to proceed. The intent to proceed can be indicated in any manner; however lenders should get it in writing to be safe. No one can impose a fee, with the exception of a fee for a credit report, on the borrower until the borrower has both: 1) received the LE and 2) given their intent to proceed.
Closing Disclosure
The Closing Disclosure (“CD”) replaces the HUD-1 and the Final Truth-in-Lending. The CD must be given three (3) business days prior to signing, or “consummation,” of the transaction. The transaction is consummated when the consumer becomes contractually obligated to the creditor. Once again, the three-day period may only be waived if there is a bona fide personal financial emergency and there is a written statement by the consumer. For the CD, business days are defined as Monday – Saturday, not including certain specific Federal Holidays.
REALTORS® should be aware of which holidays are excluded so they can stay aware of their timelines in the escrow process, and should also take note of how “business days” are defined differently than they are for the LE.
If there are any changes to the CD the consumer must be given a new CD one (1) day prior to signing. For example, if a builder suddenly allows upgrades that change the purchase price, a new CD will be needed, and an additional one (1) day will be added to the close of escrow. There are limited changes that do require a new three-day waiting period, which are: changes above APR tolerance; change to loan product; and, the addition of prepayment penalty.
The real estate commissions are much more prominently noted on the new CD than they were on the HUD-1. There is also better tracking of the parties, as the lender, broker, listing agent, sales agent, and mortgage broker each have their license numbers, phone numbers and addresses listed on the CD.
Details that REALTORS® Should Know
- Borrowers will get a “home loan toolkit” on purchase transactions so they know who or where they can go if they have an issue with their lending. Agents can prepare their buyers with a “Buyer Information Packet” available through CFPB.
- Lenders must provide the LE and CD unless the loans are made by persons not considered creditors because they finance five or fewer mortgages per year (aka seller financed).
- All documentation must go directly from the borrower to the lender, for control purposes.
- Agents should give an extra 15 days of leeway on escrow, and be mindful to keep clients informed of the extra time that may be needed as all the kinks of the new process are rolled out.
- Buyers should not expect to make any changes at closing and Sellers should not do anything that would require changes at closing.
- Prior to receiving an intent to proceed, a lender cannot charge any fees to the borrower, with the exception of a reasonable fee for a credit report.
- Lenders cannot take a borrower’s credit card number to store for future use or need, cannot take a postdated check, and an agent cannot pay a fee on behalf of a borrower.
- Many lenders will now have an “approved providers” list for the Borrower’s choice of escrow.
- Lenders have strict standards to uphold, and are ultimately responsible for everything on the CD. The lender cannot sign away this responsibility.
- A lender cannot require the borrower to submit information, such as the purchase agreement or other documentation, until after the borrower has received the LE.
The biggest area of concern and confusion in the implementation of TRID is regarding borrower pre-approval. Lenders cannot require any information from the borrower, which has many asking how a pre-approval will be done at all. If the information is needed to assess if they can qualify, but they cannot require the information, will any lender be willing to do a pre-approval? If you obtain all six items that are required for an application during the pre-approval period (ALIENS), a LE must be completed.
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TRID applies to most consumer credit transactions secured by real property, excluding home equity lines of credit (HELOCs), reverse mortgages, or mortgages secured by a mobile home not attached to real property. Currently, the new disclosures must be provided by a creditor or mortgage broker that receives an application on or after August 1, 2015. The CFPB has proposed to delay the new TRID rules to start on October 3, 2015, and that date change is awaiting public comment before it can be finalized. If the implementation is August 1, or October 3, the deadlines and requirements will not change.