What is TRID?
Key Point 1: The Process
Key Point 2: Loan Applications
Key Point 3: Borrowers
Key Point 4: Lenders
Key Point 5: Revised Loan Estimate
Key Point 6: Closing Disclosure
Key Point 7: 3 Major Circumstances
TRID Simplifies Lender Comparison
The Consumer Financial Protection Bureau’s TRID rule (informally referred to as “Know Before You Owe”) is slated to go into effect October 3rd 2015. TRID is aimed at ensuring borrowers have all the information they need to make accurate decisions on mortgage products as simply as possible. TRID consolidates four disclosures that are currently required under the Truth in Lending Act and the Real Estate Settlement Procedures Act into two forms: Loan Estimate and Closing Disclosure.
This blog post covers the essential facts agents need to know to ensure they meet their obligations under TRID. There are seven key points:
TRID does not affect pre-approvals or pre-qualifications. However, as always, in the spirit of full disclosure, homebuyers will have a better experience if they gather as much information as possible before starting the loan application process. This includes talking to multiple lenders, applying for pre-approval and prequalification, and applying for final approval well before time.
Comparing different loan products is also highly recommended, as well as ascertaining eligibility for government downpayment assistance programs.
Once buyers identify the property they wish to purchase, they must provide their chosen lender with six key pieces of information:
Once the lender receives this information, they are obligated to provide the Loan Estimate within three business days. However, there can be a delay from the provision of the Loan Estimate and the borrower receiving it. For example, a mailing delay could cause the estimate to arrive later.
This part of the rule is intended to make the lender comparison process much easier by simplifying the information borrowers must provide. Lenders can still request custom information like income verification documents, but cannot deny a loan estimate based on such requests that are outside of TRID.
A homebuyer can request Loan Estimates from different lenders at the same time. They do not need to limit themselves to just one lender. However, it is very important to understand the 10-day time limit on a Loan Estimate. Therefore, to maximize their comparison time, homebuyers should apply for Loan Estimates to every lender they wish to compare on the same day.
After receiving the Loan Estimates, homebuyers must let their chosen lender know which loan they intend to proceed with. Lenders are not obligated to take action on the loan otherwise. Yet by the same token, lenders cannot charge additional fees for services like an application or appraisal. They can only issue a reasonable fee for requesting the credit report.
However, lenders are free to have different requirements for the form and manner in which borrowers indicate their intention to proceed, so a borrower should make sure they understand these requirements.
While lenders may not collect payments or even payment information in advance, they can require borrowers to pay for needed costs immediately after confirming the intent to proceed. These fees may include tasks such as loan appraisal, processing, verification and underwriting: Whatever the lender needs to perform their job.
If the borrower significantly changes circumstances after issuing the initial Loan Estimate, the lender may issue a revised one.
And of course, if such changes occur late in the process, the lender may need time to respond, such as by redoing the underwriting. This may involve additional fees.
On the other hand, minor changes, such as when seller agrees to pay for an additional cost, do not require the lender to issue a new Loan Estimate. These last-minute changes are typical and lenders have the flexibility to handle them.
The Closing Disclosure should contain all the terms of the transaction at least three business days before the actual closing date. To accomplish this, settlement agents and creditors need as much information as can be provided from the buyer, seller and agents as soon as possible. The intent behind this rule was to prevent lenders imposing significant changes that would put pressure on borrowers to sign the same day.
Mandatory information in the Closing Disclosure includes the buyer’s and the seller’s real estate brokerages’, as well as their agents’ names, addresses, state license ID numbers, email addresses and phone numbers. A legal Closing Disclosure cannot be made without this information, so agents need to take care to communicate this information to the lender.
As noted, most last-minute changes before settlement are unlikely to trigger the need for an additional Closing Disclosure. However, there are three major changes to loan terms that will require the lender to issue a revised Closing Disclosure and subsequent new three-day review period:
Borrowers are not entitled to waive their right to the review period.
Overall, TRID simplifies the borrower’s task of comparing lenders. Instead of borrowers needing to meet the unique requirements of each lender, borrowers now have a general set of information they must provide. However, there are some key time limits and requirements involved, which we have outlined in this review. Ensure you are aware of them by October 3, and you will have no trouble transitioning to TRID.