The TILA-RESPA Integrated Disclosure rule, commonly referred to as “TRID” has been in effect for almost six months (TRID went into effect on October 3, 2015) and despite serious concern from transactional real estate professionals, the new regulations haven’t quite had the bogging-down type impact that many anticipated.
The Consumer Financial Protection Bureau designed the combination Truth in Lending Act (TILA) and Real Estate Settlement Procedures Act (RESPA) rule to put more responsibility and liability on institutional lenders by making mortgage loan transactions more transparent through redesigned mandatory forms used for initial Loan Estimates as well as a new settlement statement called a Closing Disclosure which replaced the HUD-1. Traditionally, while the lender would have to approve the final settlement statement before closing, the closing agent was responsible for the form. Under TRID, the lender now bears responsibility for the Closing Disclosure. TRID was designed to make it easier for borrowers to understand where their money was going when they financed a real estate transaction and to ensure that borrowers are informed about which fees and costs can be shopped between lenders.
The “3 Day Rule” is what many were concerned would cause delays and headaches in getting real estate transactions closed. The rule requires that the new Closing Disclosure settlement statement must be finalized and issued to the borrower at least three days before closing. Any increase to a variety of borrower costs triggers a push-back of the closing date by three business days. Whether an increase in a borrower cost will trigger the 3 Day Rule is tied to whether the cost is something that the borrower can shop for between various lenders and also the percentage increase in the cost. Increased fees or costs to the seller would not require a closing to be postponed under TRID.
If the cost is not required by the lender, there is an unlimited tolerance for increase and would not trigger a mandatory extension. If the cost is required by the lender and either paid directly to the lender to a third party required to be used by the lender the 3 Day Rule is triggered. If the cost is paid to a third party not required to be used by the lender but on the lender’s list and the borrower either selects a provider from the lender’s list or fails to make a selection and the lender selects for the borrower, then the cost can increase up to 10% without triggering an extension under TRID.
TRID also requires that certain costs and fees paid to a lender, mortgage broker or an affiliate cannot increase from the Loan Estimate to the Closing Disclosure. An example would be the mortgage origination fee charged to the borrower.
TRID was designed with the consumer in mind, and while its provisions could potentially cause a delay in closing, the overall benefit of increased transparency required of lenders will be a positive for borrowers.
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