Whether or not you have heard of TRID, it will impact you and your clients — and it’s coming.
Oct. 1, 2015, will bring a long-anticipated change to the mortgage process. Homebuyers and, therefore, real estate agents will be affected by the change, with different forms, different timelines and different processes.
TRID, also known as the TILA-RESPA Integrated Disclosure Rule, is aimed toward making mortgages more transparent and easier to understand for consumers, but there will be a learning curve.
Keep these three primary areas in mind while preparing yourself and your clients for homebuying:
1. The old forms are out.
The homebuyer will be receiving new disclosure forms from lenders explaining the loan estimate and loan closing.
The Loan Estimate form combines the Good Faith Estimate (GFE) and the Truth in Lending Disclosure into a shorter form that should be easier to understand and explains the mortgage loan’s key features, costs and risks at the beginning of the mortgage process.
Under TRID, a lender cannot impose any fee, except a reasonable fee for obtaining a consumer’s credit report, on a consumer until the consumer has received the loan estimate and has indicated intent to proceed.
This should make it easier for a consumer to shop for and understand interest rates, but it might take lenders longer to preapprove someone because they are going to be extra careful when collecting and reviewing borrower information.
The Closing Disclosure form combines the final Truth-In-Lending statement and the HUD-1 settlement statement into a shorter form that should be easier for the consumer to understand and provides a detailed account of the entire real estate transaction, including terms of the loan, fees and closing costs.
This disclosure might transform the closing table from a nightmare experience with piles of documents to review for the first time into a more manageable, slightly bad dream of reviewing the information ahead of time.
With more information provided by the lender before the closing date, the various roles held by the lender and title company at the closing table might change. Stay tuned.
2. The disclosures must be provided within a specific time frame — or else.
Lenders must provide the Loan Estimate form to consumers within three business days of applying for a loan – which means three business days after the consumer provided the lender with their name, income, Social Security number, property address, property value estimate and mortgage loan amount sought.
The Closing Disclosure form must be provided at least three business days before loan consummation (the time the consumer becomes contractually obligated to the mortgage, which is usually at closing).
Any significant changes to the loan terms (the annual percentage rate (APR) becomes inaccurate, the loan product changes or a prepayment penalty is added) will restart a new three-business-day waiting period.
Both the Loan Estimate and Closing Disclosure forms can be delivered in person, by mail or electronic delivery.
3. The closing process will be impacted this summer and in the months to come.
The TRID rules apply only to loan applications received after Oct. 1. The timing should be of concern to agents and homebuyers. According to the National Association of Realtors, if 10 percent of transactions experience closing issues due to TRID, that’s as many as 40,000 transactions a month.
Lenders will be extra careful and hesitant after Oct. 1 while providing mortgages so as not to be out of compliance with the new rules. This will most likely translate to longer timelines to get a mortgage and delayed closing dates.
This, in turn, will impact the tight timelines around moving into a home while consumers are also coordinating assets, move-in dates, time off of work and so on.
So, prepare yourself and your clients for what is to come, and review your current procedures to ensure your compliance. The accuracy and delivery of the new forms will be critical to ensure the mortgage process is not derailed or delayed, and your clients have a smooth purchase process.
For more on TRID, see here.
Brad Kessler is the co-founder and CFO of MortgageHippo. You can follow him on Twitter @BradEKessler or on LinkedIn.