If you are working anywhere near the real estate industry, by now you have heard about the importance of the regulations known as TRID. There are many questions about these regulations, and in this article, we will try to answer these from a consumer and real estate practitioner point of view.
What is TRID?
TRID is the result of the Federal Consumer Financial Protection Bureau’s “Know Before You Owe” initiative in which the agency is trying to make the home buying process easier to understand for consumers, as well as making important documents available before the actual closing takes place. TRID is an acronym which stands for the TILA and RESPA Integrated Disclosure Rule. Yes, the government has actually come up with an acronym to replace two acronyms. Thus, first we must explain TILA and RESPA.
TILA stands for the Truth-in-Lending Act. This law regulates all consumer lending, not just real estate finance. For example, if a consumer obtains a credit card, there will be a TIL disclosure issued for the purpose of giving the consumer the “true cost” of borrowing by factoring in borrowing fees into an overall number called the “Annual Percentage Rate” or APR. What is unique about mortgages is that an initial TIL Disclosure is required for mortgages within three business days after submitting an application and a final TIL Disclosure is required at closing. In contrast, you might obtain a credit card the same day you apply for it.
RESPA stands for the Real Estate Settlement Procedure Act. This law specifically focuses upon the regulation of residential real estate transactions. There are many aspects of RESPA, but here we will focus on another required disclosure, the “Good Faith Estimate” of Closing Cost, which also must be issued within three business days of application. RESPA also requires the issuance of a HUD-1, the final closing statement, which some years ago was aligned so that the numbers were synchronized with the initial Good Faith Estimate.
How does TRID change all of this?
The government’s goal was to make the process simpler by integrating the two disclosures into one—both upfront and at closing. Thus, there is a new disclosure required three days from application and is called a Loan Estimate. This new disclosure replaces both the Good Faith Estimate and the Truth-in-Lending Disclosures. At closing, the HUD-1 and final TILA are replaced by the Closing Disclosure.
Though these rules are designed to make the process simpler, in reality the requirements for timing, re-disclosure if changes occur before closing, and making the forms “multi-purpose,” can actually be quite complex. Even the definition of what constitutes a “business” day can be confusing.
What about the timing requirements?
Though there is no change with regard to the timing requirements after application, there are two important timing changes that take place under TRID.
- The Closing Disclosure must be provided to the consumer three business days before closing. This means that the transaction’s numbers must be finalized well before the settlement date.
- The Loan Estimate must be issued seven business days before closing. Depending upon weekends and Holidays, this means that most closings must occur at least two weeks after application. In addition, if allowable changes occur, the Loan Estimate must be reissued within three business days and received by the consumer four days prior to loan closing.
What does this mean for homebuyers?
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