Top Ten Things Agents Need to Know About TRID
By: Gary A. Coffin, Director of Client Education
Great East Title Services
The new TRID rule is now in effect. The changes have brought
new responsibilities on the part of borrowers, lenders, title
companies and real estate agents. Failing to meet these new
expectations will result in closing delays. Agents need to
familiarize themselves with the provisions of the new rule to help mitigate potential
consequences to their clients. Below are ten things agents need to know that will
help them guide their clients through the new closing process.
1. What is TRID? TRID is the acronym used for the TILA-RESPA Integrated
Disclosure rule. The new rule, promulgated by the Consumer Financial
Protection Bureau, established a new process with new disclosures for
residential mortgage loans originated after October 3, 2015. The new rule
also gives the CFPB the broad authority to impose fines ranging from
$5,000.00 to $1,000,000.00 to mortgage lenders not in compliance with
TRID. Residential mortgage loans originated prior to October 3, 2015 will
follow the rules that existed prior to the adoption of TRID.
2. What Types of Closings Are Covered Under The New Rule? The new rule
covers most residential mortgage loans including those sold to Fannie Mae,
Freddie Mac, bank portfolio loans, mortgages insured by FHA, and
guaranteed by the Veterans Administration and USDA. Cash and most
commercial transactions are excluded from the rule. Homes financed with a
reverse mortgage or home equity lines of credit are also excluded from the
new rule.
3. What Are The New Disclosures? The Good Faith Estimate will be replaced
with a new disclosure called the Loan Estimate. The HUD Settlement
Statement will be replaced with a new document called the Closing
Disclosure. The Loan Estimate and Closing Disclosure are more
comprehensive documents and in addition to closings costs include
disclosure information about the loan product the borrower has chosen.
Because of the additional detail, most lenders will provide the buyer and
seller with separate Closing Disclosures. The seller Disclosure is an
abbreviated version of the buyer Disclosure and only contains the financial
information associated with the transaction.
4. Borrower Must Notify the Lender of Their “Intent to Proceed” Before
the Appraisal is Ordered. Residential mortgage lenders are prohibited from
collecting any fees from a borrower other than a credit report fee until the
borrower has received the new Loan Estimate and indicate that they would
like the lender to proceed with the application. The lender must issue the
Loan Estimate within three business days of the CFPB’s definition of
application. The appraisal fee will not be collected and the appraisal will not
be ordered until the borrower has received the Loan Estimate and has
notified the lender they would like to proceed. The “intent to proceed” is a
new step in the process that the borrower will need to be aware of and will
need to take action in order to avoid a delay in ordering the appraisal.
Although the rule provides for verbal affirmation of their intent, some
lenders will require written affirmation. Borrowers should consult with
their lender to determine what method will be required to satisfy this
requirement.
5. Additional Fees and Costs Will Be On The New Disclosures. The Loan
Estimate and Closing Disclosure will give a more comprehensive breakdown
of all the costs associated with the purchase transaction. The lender must
disclose all items required to be paid by the buyer customary for the region
and type of loan transaction. They must also include all costs to the seller
and any third party pursuant to the terms of the purchase and sales contract
to the extent the lender has knowledge of the charges. This will include
amounts not traditionally disclosed on the HUD Settlement Statement,
including any services for a fee required by the buyer and all adjustments
between the buyer and seller as disclosed on the contract. It includes such
items as fuel proration, building inspection fees, home warranty premiums,
and rent proration. Some lenders have indicated they will only include
inspection fees on the Loan Estimate and Closing Disclosure if they have
actual knowledge that the borrower exercised their option under the
agreement. If the lender does include the inspection fees, they will need the
amount of the inspection fees and may request a copy of the final bill. It will
be important to provide the lender with exactly what is requested. The home
inspection invoice is often delivered electronically as part of the inspection
report. It will be important to separate the bill from the report and provide
the lender with only the invoice. They will not need or want a copy of the full
report.
6. Lenders Will Deliver the Closing Disclosure to the Borrower. Most
lenders have indicated they will be taking on the responsibility of delivering
the Closing Disclosure to the buyer. The title company or law firm handling
the transaction will only be responsible for delivery of the seller Closing
Disclosure. Because the new Closing Disclosure for the buyer contains
personally identifiable information (PII), many lenders have indicated they
will not provide the buyer’s agent with a copy of the Disclosure without
written authorization from the borrower. Some have indicated that they will
not provide the agent a copy of the Disclosure even with written
authorization and that the agent will need to obtain a copy of the Disclosure
from their buyer. Most all of the lenders have indicated the selling agent can
receive a copy of the seller’s Closing Disclosure. Lender policy of who
delivers and who will receive the Closing Disclosure will vary among lenders.
Agents will need to stay informed as to the policies of the particular lender
the buyer has chosen.
7. Many Lenders Will Prepare the Closing Disclosure. Most lenders will also
prepare the Closing Disclosure for the buyer. However, most lenders will
have the title company or law firm conducting the closing be the conduit of
financial information. The commission statement, fuel proration and other
costs typically obtained by the agent will still be given to the settlement
company. Most lenders will require all financial information required to
prepare the Disclosure be submitted to the settlement company at least 10 to
12 business days prior to closing. Agents will need to make certain any
financial information required by the lender is received in accordance to the
lender’s timeframe in order to avoid closing delays. Lenders will allow
adjustments to be made after the initial Closing Disclosure has been issued,
including adjustments for final inspection items and fuel proration provided
the changes comply with underwriting guidelines for the loan product and
borrower’s circumstances. Agents will need to ascertain from their buyer’s
lender where any financial information typically obtained by the agent will
need to be sent.
8. Borrower Must Have The Closing Disclosure At Least 3 Days Prior To
Closing. The lender has the option of delivering the Closing Disclosure by
mail, electronically or by hand. If the lender chooses to mail the Closing
Disclosure, it must be mailed at least 7 business days prior to the closing. No
proof of receipt by the borrower is required using this method of delivery. If
the lender chooses to hand deliver or send the Disclosure electronically, the
borrower must receive it at least 3 business days prior to closing. The lender
must also have documented evidence the borrower received it within the
required timeframe. If the lender is unable to obtain evidence the borrower
received the Closing Disclosure at least 3 days prior to the anticipated closing
date, the closing will be delayed and will close no sooner than 3 business
days after sufficient evidence is obtained. Acceptable proof would include a
return email from the borrower or an electronic date stamp indicating the
email recipient opened the link to the Disclosure. Because of the potential
difficulty with providing evidence the borrower received the Disclosure,
many lenders have decided to follow the 7 day standard and mail the
Disclosure to borrowers. Lenders using the 7 day standard have indicated
they would follow-up with the borrower using a secondary means to ensure
they received the information needed for closing. Under the Closing
Disclosure section of the rule, a business day excludes Sunday and Federal
holidays.
9. Loan Commitment Conditions Must Be Cleared Earlier In The Financing
Process. Many lenders have indicated borrowers will need to have all
conditions of the commitment met before they will issue the Closing
Disclosure. In these circumstances borrowers will need to clear all
conditions at least 10 business days prior to closing in order to avoid closing
delays. Several lenders have indicated that they will evaluate the remaining
conditions and will issue the Closing Disclosure provided the conditions are
likely to be resolved prior to closing. It will be important to ascertain the
lender’s policy with respect to clearing commitment conditions and the
impact it could have on the closing date.
10. Certain Changes in Borrower Costs May Cause a Closing Delay. If a
change to the Closing Disclosure is made within 3 business days of the
closing, the closing could be delayed. However, the changes that would result
in a delay are limited to only three types of changes. They include changes in
the borrower’s loan program, the addition of a prepayment penalty or an
increase in the annual percentage rate (APR) by more than 1/8% on a fixed
rate loan or 1/4% on an adjustable rate loan. Any other changes such as the
addition of the fuel proration, final inspection adjustments or typographical
errors would not cause a delay in the closing as a result of TRID, although
some of the changes will still have to be reviewed by the lender’s
underwriter.