The Game of TRID – Info You NEED
As you may have heard by now…beginning August 1st, 2015 the CFPB (Consumer Financial Protection Bureau) will mandate a new closing process known as TRID which is designed to increase transparency for consumers. Basically, the CFPB wants consumers to “know before they owe!”
TRID stands for Tila-Respa Integrated Disclosure.
Soon, the HUD-1 Settlement form, the Good Faith Estimate (GFE), and the TILA or Truth in Lending Act disclosure form will go away and will be replaced by two new forms…the Closing Disclosure and the Loan Estimate.
We in the industry are being told to add additional time to close on a home if the buyer is financing the purchase. Buyers and sellers need to be aware of these changes!
For reference, here’s a link to what the new CD or Closing Disclosure and the new LE or Loan Estimate will look like.
To start, the Loan Estimate will be given to the buyer no later than 3 days after the loan application is completed. The buyer MUST sign and return an Intend to Proceed form within 10 days of receipt of the Loan Estimate. This form is a disclosure made between the borrower and the lender. This form is part of our disclosure systems already, so there’s really no change to procedure here.
The Closing Disclosure will be given to the buyer a minimum of 3 days before signing of the documents. Closing will not, and cannot, occur prior to this 3 day window. The LE and CD need to match as close as possible within current tolerances in order for the closing not to be delayed. That’s a big part of what needs to be known about the changes, but it’s also something that has been in place in the current world – just now those tolerances and timings have changed.
Remember, the delivery of the Closing Disclosure is critical. The three day waiting period is mandatory, so don’t think you can have it waived or adjusted. The lenders MUST let all parties know when the CD has been delivered to the buyer!
The TILA and RESPA forms have been around for a very long time. They are confusing documents for many people. Part of the thought behind the CFPB changing the closing process is to make it easier for a buyer to understand the financing process.
On the plus side of the new CFPB changes, loan documents should be ready when the Closing Disclosure is issued. This means that loan documents will be delivered to escrow three days prior to the closing date on a regular basis. That’s going to be a good thing!
There are three events that can require a new Closing Disclosure and new waiting period. i.e.: Cause a delay in the closing of the loan.
1. The addition of pre-payment penalty.
2. The changing of the loan product, such as moving from a fixed to variable rate, etc.
3. If the APR goes up by more than 1/8% on a fixed rate loan or 1/4% on a variable rate loan.
Really, none of those three things should be happening anyway, so we hope delays in the process will be minimal.
Under the new rules, The Combined Closing Statement (or CCS) will replace the HUD-1 Settlement Statement. Upon close of escrow, the file will be disbursed based on the Combined Closing Statement. This is where you will see all of the final numbers for net proceeds, cash to close, final proration’s, etc.
The clarity of the matching CD and LE will be a benefit to people who buy and sell homes.
NAR President Chris Polychron recently told the U.S. House Financial Services Committee that a grace period is needed to give lenders, title agents, real estate professionals, and buyers and sellers time to get used to new closing procedures. Just yesterday, the CFPB made it official by granting such a grace period, seen here: CFPB to grant grace period on TRID enforcement.
The KEY is communication at all levels. Envoy Mortgage is a technology and communication leader in the industry and we have been on the front side of these changes so that we will hit the change date running. We are very proactive in this cause. Our proprietary systems are already designed to handle the ins and outs of this new rule…which all of us, acting as circle of advisors to our buyers and sellers, need to understand the process, be willing and able to work with all parties of the transaction as everyone adjusts to the new requirements.
A very brief summary of the new CFPB process looks like this: An offer is accepted, the lender informs when Loan Estimate was delivered to buyer, when the Intent to Proceed was given (again, all part of a current internal process anyhow), and when a Closing Disclosure was delivered so that all parties know when the first available signing/closing day can occur. Of course, this scenario is in addition to all of the other moving parts coming together for completion of the sale of a home.
A couple of other things to think about with the new CFPB changes are:
1. Sellers need to be made aware that road blocks can occur and that delays may happen.
2. Trying to do a simultaneous closing is going to be a nightmare in the beginning.
Don’t get scared…GET BETTER. In the end, I don’t think it will be as bad as we may think it will be. Of course, time and closings will tell. Please remember, the sky isn’t falling, we’ll get through this!
“You can’t change the direction of the wind, but you can adjust the sails to reach your destination” – Jimmy Dean
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