Written by: Kimberly G. Bosshardt, Esq.
**As of the writing of this article, the TRID Rule as it is commonly referred to has been postponed. This article will help you prepare when it is fully implemented.
In light of the 2007 financial crisis, the federal government realized that the lending practices in 2000 were the root of the problem.
In 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act went into effect and which created the Consumer Financial Protection Bureau (CFPB). The CFPB consolidates most federal consumer financial protection authority in one place with the one goal of watching out for American consumers in the market for consumer financial products and services. On October 3rd, the final result of changing the mortgage rules went into effect called the TILA-RESPA Integrated Disclosure Rule (the “TRID Rule”). This rule will change the practice of residential real estate closings and the real estate market place in general.
The TRID Rule combines two existing disclosure regimes under TILA and RESPA with the goal of making mortgage disclosure easier for consumers to understand and use. Lenders most recently disclosed loan costs to consumers by providing a Good Faith Estimate (GFE) and closing costs were finalized on a HUD-1 settlement statement. On October 3rd, consumers began receiving a “Loan Estimate” from their lenders and closing will now be finalized not with a “closing” but with “consummation” where a “Closing Disclosure” or “CD” for short will illustrate the buyer’s loan product and closing costs in one place. Lenders will no longer use a HUD-1 form.
Here are some quick facts about the TRID Rule and how they will affect the real estate marketplace:
1. CD Timing. The CD must be delivered to the borrower/consumer at least three days prior to closing. Timing is very important. Lenders are requesting that realtors, and settlement agents provide all invoices to be paid at closing at least 10 days prior to closing. Because of this, now borrowers will know well in advance their actual cash to close.
2. Give the lender and settlement agent consent. The CD is considered private information. A borrower must give the lender and settlement agent consent to share the CD with their realtor.
3. No signature line? The CD form does not have a signature line, although most lenders will most likely have a document for the borrower to sign acknowledging the CD.
4. Closing can be delayed. Closing can be delayed if something changes with the buyer’s loan product after the CD has been delivered if any of the following happen: a) the APR changes; b) prepayment penalty is added; c) they type of loan from fixed to variable or vice versa changes. If any of the foregoing happens, then the CD will have to be revised and closing will be delayed.
5. Title Insurance will be disclosed incorrectly. Title insurance will be disclosed by the lender at a higher rate than what the borrower will actually pay at closing. In Florida, when an owner’s title insurance policy is issued at the same time as a mortgagee policy, the mortgagee policy is $25.00 versus the standard promulgated rate. However, because this is a federal rule, it does not take into account Florida’s title insurance pricing procedure, but requires the lender to disclose the full rate. So the loan estimate will have a much higher number than what will be paid by the buyer. Even the CD will show the full rate with a discount from the settlement agent for the difference between the promulgated full rate and the simultaneous issue rate.
6. Be patient. Because timing is so important with lender requirements for disclosure, we are estimating closings to take longer. A normal “45 day” close for a regular financing may turn into 60 days.
Note, that the change in the lending laws with the CFPB will not affect cash closings or commercial closings.
Bosshardt Title is ready for these changes and look forward to having final numbers well in advance of having a consummation scheduled. We are also always able to assist with educating buyers andsellers about the closing process and how the TRID Rule will affect consummation.