Residential Loan Closings Under the TRID Rules
On October 3, 2015, the Consumer Financial Protection Bureau (“CFPB”) implemented a new rule combining the mortgage disclosures borrowers receive when applying for a mortgage and those they receive at the closing table. For more than thirty years, the Truth in Lending Act (“TILA”) and the Real Estate Settlement Procedures Act (“RESPA”) were separately administered. In 2010, Congress directed the CFPB to create rules and model disclosures that combine the required disclosures under TILA and RESPA into an integrated disclosure for mortgage loan transactions. Consumers currently receive different but overlapping federal disclosure forms with the terms and costs of mortgage loans. The integrated disclosure, called TRID, will bring a long-anticipated change to the mortgage process and real estate transaction. TRID is aimed toward making mortgages more transparent and easier to understand for consumers.
As part of the changes, two new forms, the Loan Estimate (LE) and the Closing Disclosure (CD) will replace the Good Faith Estimate (GFE) and HUD-1 Settlement Statement. Now, lenders must provide the borrower with the LE within three business days of receipt of the borrower’s loan application. The LE combines the GFE and the Truth in Lending Disclosure into a shorter form that is easier for borrowers to understand and explains the significant provisions of the mortgage, along with the costs and risks associated with the mortgage. Further, lenders cannot impose any fee on a borrower until the borrower has been provided the LE and has indicated an intent to proceed with the loan. This new process makes it easier for consumers to shop around and understand interest rates, but lengthens the time it will take for a lender to pre-approve a borrower, as lenders will be more thorough with their collection and review of the borrower’s credit information.
The CD combines the final Truth-In-Lending statement and the HUD-1 settlement statement into one form that is easier for a consumer to understand and provides a detailed account of the loan transaction, including its terms, fees, and closing costs. The CD must be provided at least three business days before the mortgage loan transaction closes. Currently, borrowers often receive this information at the closing table. The additional time will allow borrowers to compare the final terms and costs to the terms and costs they received in the LE. Any changes to the terms of the loan, including changes to the annual percentage rate, the loan product, or the addition of a prepayment penalty, will trigger a new three business day waiting period.
The TRID rules apply only to loan applications received by lenders after October 3, 2015. Lenders will be hesitant when performing the new procedure under the rules, which will likely create longer timelines to close a loan and corresponding delayed closings.
The following transactions are exempt from TRID:
- Home equity lines of credit
- Reverse mortgages
- Mortgage loans secured by a mobile home or by a dwelling that is not attached to real property
- Loans made by a lender who makes 5 or fewer mortgages in a year
- Certain no–interest second mortgage loans made for the purpose of down payment assistance, property rehabilitation, energy efficiency, or foreclosure avoidance
- Business, commercial or agricultural organization as borrower
- Nicole Villaroel is a real estate attorney at Olive Judd. She focuses her practice on commercial and residential real estate transactions.