New TILA-RESPA integrated disclosure rules (TRID) are tricky to condense because the rule runs almost 2,000 pages. However, that is why you turn to MCA. In this blog post, we will explain what TRID replaces in a loan file and what you should do about it.
Loan Types Affected
TRID is pursuant to the Dodd–Frank Wall Street Reform and Consumer Protection Act passed in 2010, which is now administered by the Consumer Financial Protection Bureau (CFPB). TRID applies to most "closed-end" loans made on or after August 1, 2015 that are secured by real property. These are loan types that are exempt from TRID:
- Reverse mortgages
- Home equity lines of credit
- Commercial business loans
- Agricultural loans with no fixed dwelling
- Temporary loans
- Construction loans with a term of two years or less
- Bridge/swing loans
New TILA-RESPA Forms
TILA-RESPA mandates the use of two disclosures to aid in consumer understanding and industry compliance:
- Loan Estimate (LE): replaces the Good Faith Estimate (GFE) and initial Truth-in-Lending Disclosure, which are provided to consumers at the start of the transaction and includes both initial disclosures and timing restrictions (must be provided within 3 business days from the date the application is received)
- Closing Disclosure (CD): replaces the HUD-1 Settlement Statement and final Truth-in-Lending Disclosure, giving consumers 3 days to review all final terms and conditions and seeks to avoid borrowers from signing documents under duress
Why Are Mortgage Lenders Scared?
What's scary is the lack of TRID interpretation and that it's the first compliance rule we've seen of this size and caliber, weight and authority. If not adhered to, there is fear that since the CFPB has full authority to show up and audit you on TRID, they could levy substantial fines, limit your business practices, and make this information public. It's estimated that more than half of lenders don't even have their loan origination software set up yet, which may cause operational chaos.
Operational Chaos & How to Overcome It
Normally, when a loan is closed, the borrower signs all documentation with the title company. However, since the lender is now responsible for all documentation to be accurate and compliant under TRID, many are considering the possibility of taking full control of issuing the closing disclosure to the borrower. Title companies usually handle this process, so it's unclear how lenders can handle it appropriately.
Many things can happen at closing: sellers may be called upon to make concessions, there can be escrow changes and there can be other APR related changes, tolerance issues, the loan amount, etc. Under TRID, the lender would now have to manage these changes with the title agent with changes being incorporated and re-disclosed to the borrower. If changes are made to the APR, loan program, or if a prepayment penalty is added to the loan, the lender must issue a new closing disclosure to the borrower and wait three days before closing the loan.
Technically, the 3-day waiver still exists in the event of a bonafide emergency, but many investors say they won't purchase the loan if there's a waiver so it's unlikely to be serviced and purchased on the secondary market if this document is utilized in the transaction.
Another difficulty: we've all known that TRID was coming, but it's complicated. Many lenders have figured out how to do one piece, but it opens up questions on other pieces. For example, some have the misconception that they can send their disclosures via secure email, but this is not in compliance with The Electronic Signatures in Global and National Commerce Act (E-SIGN Act). Instead, electronic disclosures must be delivered through a secure platform. Borrowers must also opt-in to receive disclosures electronically.
Many misconceptions stem from a lack of understanding of TRID, whereas a true understanding requires one to consider the impact this new rule will have on its daily business operations and its ability to maintain compliance, outside of just using the new forms in August.
TRID Questions to Ask Yourself
- Are you finding preparation for the upcoming deadline daunting?
- Is TRID going to cause excess strain on your organization?
- Have you educated your staff on the upcoming changes?
Mortgage Compliance Advisors can help you answer these questions so that your organization is ready for the impending launch of TRID.