This is an introductory presentation which will cover the basic information about the new rules including a: Practical description of the new rules and An overview of the changes There will be subsequent presentations over the next several months which will provide: Specific details on each new form Suggestions on how to prepare for the change
Truth-in-Lending Act (TILA)/RESPA Integrated Disclosures, or TRID as it is commonly being referred to, is the most significant regulatory event that has occurred in the residential mortgage industry in over 30 years. For more than 30 years, lenders have been required to provide disclosures under (2) different Federal regulations: The Truth-in-Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA). The forms provided were commonly referred to as: The Good Faith Estimate (GFE) The Reg Z / Truth-in-Lending Disclosure (TIL) issued both at application and at settlement The HUD-1 Settlement Statement These forms had overlapping information and in some instances the language was inconsistent. As part of the Dodd-Frank Wall Street Reform Act, enacted by Congress, the Consumer Financial Protection Bureau (CFPB) was established. Dodd-Frank directed the CFPB to consolidate and simplify these forms to be more consumer friendly, transparent and eliminate inconsistency. The result of those efforts are TRID.
There are two new disclosures which form the basis of TRID: The Loan Estimate (LE) Replaces the GFE and Initial TIL The Closing Disclosure (CD) Replaces the HUD-1 and the Final TIL Although these 2 forms are the foundation of the change, it would be a mistake to assume that TRID is just 2 new forms that replaced 3 old forms.
The requirements surrounding TRID are ultimately the responsibility of the lender. Knowledge is Power. It is important to understand how this regulation impacts the entire residential lending process, which ultimately affects you and your business.
The regulation is effective for all applications received on and after October 3, 2015. Applications received on or before Oct. 2, 2015 are NOT subject to the new regulations and will continue to be subject to existing criteria and will use existing disclosures.
The definition of an application has also changed with the implementation of TRID. There is now a consistent and universal definition of what constitutes an application. When a lender has received the following 6 pieces of information, it will be deemed an application: 1. Borrower Name 2. Borrower Income 3. Borrower Social Security Number 4. The subject property address 5. Estimated property value 6. Loan amount sought Existing criteria permits lenders to develop their own unique 7th item in order to deem an application complete. This 7th catch-all item option is eliminated for applications subject to TRID. The only loans NOT covered by TRID are: Reverse Mortgages, HELOCs and mobile homes or dwellings that are not attached to real property / land
The Loan Estimate (LE) must be delivered to the borrower within 3 business days of the application It is anticipated with the elimination of the 7th item, loans will need to be disclosed earlier in the process. The regulation provides a lender with the ability to issue a closing cost worksheet in advance of an application being taken. There are specific provisions in the regulation regarding the format of the worksheet so that it is not misconstrued as an LE. No fees may be imposed on a borrower in connection with the application before the borrower has received the LE and has indicated to the creditor their intent to proceed with the transaction. In addition, no payment information may be requested or held until intent to proceed is provided.
A lender cannot require a borrower to provide ANY documentation to verify the information on their application in order to issue the LE. Once the 6 items are received, a lender has a complete application and the LE must be issued within 3 business days. The ability for a lender to provide any type of meaningful Pre- Approval or Pre-Qualification letter may be impacted by this restriction.
The borrower must still: Sign an Intent to Proceed; Be given the Settlement Cost Booklet and the Adjustable Rate Mortgage Booklet; Be given all appraisal and valuation models used in the lending decision; and There must still be a legitimate change of circumstance in order to change certain fees.
The lender must provide the Closing Disclosure (CD) to the borrower 3 business days prior to closing / settlement. THERE IS NO EXCEPTION TO THIS RULE. Previously the HUD-1 Settlement Statement was customarily prepared by the closing agent. The new regulation now gives lenders the option to issue the Closing Disclosure, including any revisions that are needed. Many lenders are considering this option due to the magnitude of the change and the lender s responsibility for accuracy and timing. Since the borrower must receive the CD prior to settlement, lenders will need to accommodate both borrower and settlement agent questions. In addition lenders must also accommodate corrections that must be made at the time of settlement. In order to meet these deadlines, at a minimum the lender, the Realtor, the Builder, the Settlement Agent and the Borrower s Insurance Agent must all proactively work together to obtain all information needed, much sooner than today s process.
The next TRID presentation will focus specifically on the Loan Estimate A review of the form New information that is required to be presented to the borrower, such as the TIP (Total Interest Percentage) What has changed no more HUD-1 Line Numbers No more blanks
The more you know the more you re informed. CFPB TRID Implementation http://consumerfinance.gov/regulatory-implementation/tilarespa/ CFPB Webinars https://consumercomplianceoutlook.org/outlook-live/