As of October 2015, the Consumer Finance Protection Bureau (CFPB) enacted a new rule known as TRID – short for TILA-RESPA Integrated Disclosure – that is having widespread effects on home buyers and sellers.
For the trivia buffs, TILA stands for the Truth in Lending Act and RESPA for the Real Estate Settlement Procedures Act, both designed to reduce fraud and increase protection for consumers after the mortgage crisis in recent years.
Now TRID aims to bring these regulations under one rule, streamlining closing documentation and helping consumers better understand their financial commitment.
And while the rule may have positive effects, it is also creating some confusion and adding to the frustrations of buyers and sellers alike. Here are a few things that have changed and what you can expect from your real estate transactions under the new TRID rule.
What Does TRID Affect?
Interest rates are on the rise, which means many banks and mortgage companies are reaching out to homeowners to refinance and lock in lower rates. And with an overall rise in the real estate industry, there are more buyers and sellers in the market than in recent memory.
The mortgage industry has been undergoing a slow but steady overhaul during the past several years and now with the new TRID rule, there are still more regulations to contend with.
This particular rule applies only to new mortgages and refinances – not to home equity lines of credit or reverse mortgages. And in some ways it’s weighted to the benefit of the buyer, which means it’s important to understand the impact it will have on you, whichever side of the transaction you’re on.
How TRID Changes Real Estate Transactions
One of the most notable trends over the past several months since the implementation of the new rule is that closings take longer. The 30-day closing has become a thing of the past – not by law but by practical effect. There are now a number of additional steps to take during a closing and those steps have created longer than expected delays.
For example, the rule prohibits lenders from imposing fees on a consumer until the consumer has received the loan estimate and agreed to proceed. On the plus side, this may make it easier for borrowers to shop for interest rates. On the flip side, lenders are likely to take longer to preapprove borrowers and to take more time vetting them.
As is always the case with new regulations, they tend to make people more cautious and proceed more slowly in order to ensure compliance. So even though the rule doesn’t explicitly lengthen the time required to close, the consequences are the same.
Another change causing delays is the requirement that the initial loan estimate must be provided to borrowers no later than three business days after the loan application. In addition, the closing disclosure must be presented at least three business days prior to the closing date. If either of these deadlines in missed, the closing will be pushed back.
The CFPB implemented these rules to give buyers plenty of time to weigh their options and understand the terms of the agreement. But the consequence is that with time to change their minds, whether interest rates increase or other loan terms are modified, buyers can trigger another three-day waiting period each time something is changed.
Getting To Your Closing
Whether you’re buying or selling a home, you need to be able to plan and prepare for your move. Given the current effects of TRID, it’s a good idea to budget 45 days instead of the usual 30.
You also want to be sure that your real estate agent, real estate attorney, lender, title company or other service provider are working together and in the loop on all parts of the transaction necessary for them to do their job effectively for you.
The documentation has changed, the timeframes have changed and the entire industry is working to stay in compliance with the new regulations. And in the end they may mean better protections for you – but in the short term it’s important to understand the impact on your real estate transaction and to have qualified professionals on your side.
If you’re preparing to buy, sell or refinance a home, get in touch with us for a free consultation. We’re committed to facilitating negotiations and getting you to your closing quickly and successfully.