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TRID

TRID is a product of the Consumer Financial Protection Bureau (“CFPB”) the organization which assumed the oversight role previously held by HUD. TRID is an acronym for Truth-in-Lending Act/RESPA Integrated Disclosures which combines the former TILA and RESPA disclosures into two forms combined with the Loan Estimate and the Closing Disclosure.

2016-01-31_0854TRID stands for:

TILA (Truth In Lending Act)
RESPA (Real Estate Settlement Procedures Act)
Integrated
Disclosure

TRID is the product of one of many changes resulting from the Dodd-Frank Act. It is 1,888 pages in length and affects every corner of the single-family mortgage. Compliance with this new rule required major systems and operational changes for lenders and will result in deeper clarity for consumers. It went into effect October 1, 2015.

To understand TRID , one must first understand what TILA and RESPA are about. According to Wikipedia, the Truth In Lending Act “…promotes the informed use of consumer credit, by requiring disclosures about its terms and cost to standardize the manner in which costs associated with borrowing are calculated and disclosed.” The Real Estate Settlement Procedures Act “…requires that lenders provide greater amounts of information to prospective borrowers at certain points in the loan settlement process.”

Prior to TRID there was a lot of confusion between TILA and RESPA. Now they have being combined in a sort of marriage, with the offspring being TRID. In the past, the HUD-1 settlement statement was given to the buyer and sellers one day in advance of the closing. The problem was that the one-day notice most often came at the very end of the day before closing, or even the day of closing, giving everyone very little time to read and decipher everything on the page.

This also led to some super long closings especially if someone at the closing was determined to read the small print before signing on the dotted line. I’ll never forget one particular closing where all  parties to the sale were finally sat down at the closing table. The closer gave the buyer the first page along with a short explanation that he didn’t have to read all those words. The buyer took the page from her and started to read. After a minute or so, the closer broke the startled silence, “Oh, you don’t have to read it, just sign at the bottom.” Our buyer replied, “I don’t sign anything I haven’t read.”  We all looked at each other and new we were in for a long, long closing. It was. It took over 5 hours!

TRID should prevent this sort of thing from happening in the future. After the housing crisis and mortgage catastrophe, new regulations have been put in place to make sure buyers fully understand what they are getting themselves into. The old forms were cumbersome and confusing. Closing officers often had difficulty explaining them to buyers, and sometimes neglected to do so completely by just glossing over them.

The biggest change and one which can affect both buyer or seller, it is the new timeline. It is now mandatory that lenders give buyers their documents at certain times throughout the process, and if they do not, the closing must be pushed back.

The new Loan Estimate must be delivered no later than 3 business days after the loan application is submitted. However, the Closing Disclosure is the big potential wrench in the plan. The Closing Disclosure must be provided at least 3 days before closing, and those 3 days are non-negotiable. The closing date must be pushed back to accommodate those 3 days.

So now that both the  HUD-1 and final Truth In Lending disclosures have been combined into the Closing Disclosure, the costs associated with closing the transaction are clear. Buyers should now understand the costs and risks of their new mortgage, and hopefully avert another crisis in the future

Of course, as with any government program, there are exceptions to these rules. In this case they only apply to real estate transactions which are being funded by lenders who are considered creditors. Also small creditors who make less than 5 loans in a year are not bound to these new regulations. They also don’t apply to HELOCs, reverse mortgages or loans secured on mobile homes or dwellings not attached to real property.

The waiting period can be waived, but only in dire financial circumstances, such as an imminent foreclosure. The borrowers must provide the lender with a dated written statement describing the emergency and specifically amending or waiving the waiting period. The statement must be signed by all parties to the contract on the buyer’s side. The waiver may not be a pre-printed statement from the lender.

Does TRID Affect Investors?

The new rules and procedures mainly affect retail buyers, so why should investors care? For buy-and-hold investors, this won’t be much of a change. It will have the most effect on flippers, who typically sell their flips to those retail buyers.

There are very specific circumstances that can change the loan terms. One would require a new Closing Disclosure be given to the buyer, which comes with its own 3-day review period. If this happens more than 3 days before closing, your deal will probably go through as planned. But if this happens less than 3 days before closing, your deal gets thrown off.

Where There’s Change, There’s Danger…

If you do come across a delayed closing due to these new rules, your attorney may consider writing an Amend/Extend to change the date of closing. While this delay may eat up a few days, it is better than trying to find a new buyer. However, I would not ever recommend allowing the buyer to occupy your home before closing, not even for just a day. There are so many things that can go wrong with these new rules, I couldn’t even begin to list them all.

As the lending institutions and closing companies continue to work through these new rules, we have been experiencing some initial problems. But patience and understanding can go a long way to saving your deal.

Here at GPS we work with some truly exceptional mortgage lenders who have been more than helpful explaining the new rules to not only our team, but our clients.  If you have any questions or concerns about the entire mortgage process, please get tell us and we will put you in touch with a lender who can answer them.