Monday, November 30, 2015

Understanding the TILA/RESPA Integrated Disclosure (TRID) Rule

The TILA/RESPA Integrated Disclosure (TRID) Rule is in effect and real estate agents across the country need to carefully navigate homebuyers through these unfamiliar waters. With a clear understanding of what to expect, it’s possible to avoid choppy sailing.

Before getting into what real estate agents need to know, it is important to understand what’s happened. The Consumer Financial Protection Bureau (CFPB) has integrated the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA). The new rule in effect since October 3, 2015 require lenders to 1) tell borrowers how much a loan will cost within 3 days of a mortgage application and 2) provide borrowers with more precise details about closing costs than were previously required. The goal is to make home buying a more transparent and better experience for consumers.

Strict new requirements for lenders create a higher risk of delays at closing time. But it’s not as bad as it sounds. While some last-minute changes at the settlement table will make it more difficult and in some cases impossible to close, most changes will be permitted either before closing or within 30 days of the closing. Lenders may have their own policies in place, but the CFPB requires a new Closing Disclosure and 3-day review period ONLY under these 3 scenarios.

  • If a fixed interest rate goes up by 1/8 of a percent or a variable/adjustable rate goes up by 1/4 percent by the time the Closing Disclosure was issued and the closing date.
  • If the borrower decides to go with a fixed rate rather than an adjustable rate.
  • If the investor decides to add a prepayment penalty to the note in case the borrower pays off early.

The process starts when the borrower receives the loan estimate. The loan estimate will now detail what payments will be expected throughout the 30 or 15 year life of the mortgage. Consumers have 10 business days to get back to lenders to go forward with the loan. It is up to real estate agents to explain the process to consumers and help move things along to meet deadlines.

Lenders are also now required to spell out every penny borrowers will need to bring to the closing table rather than provide a good-faith estimate. The charges will fall into three buckets:

  •  Zero Tolerance/No Variation Bucket: Includes lenders charges for origination, processing underwriting and discount points. If lender deviates from the fee by even a dollar, the borrower is entitled to a full refund.
  • The 10% Bucket: These are the services borrowers can shop for such as title services, title insurance and government recording services. If the consumer uses those services recommended by the lender and the costs change by more than 10%, the consumer is entitled to a full refund.
  • Variations Permitted Bucket: These are the fees the lender cannot accurately predict, such as property insurance and homeowner association fees.

What Real Estate Agents Should Expect

New Paperwork: The closing documents real estate agents were accustomed to have gone away. Familiar Good Faith Estimate and HUD-1 forms have been replaced with a Loan Estimate and Closing Disclosure.

Longer Transactions: If transactions in your jurisdiction typically take 30 days, build in another two weeks. If transactions take 45 days, figure 60 days until closing.

A Period of No Simultaneous Closings: At least in the initial months of the new rule, real estate agents should consider steering clients away from back-to-back closings because of the possibility that one ofthem could be delayed. You should also be prepared for more rent-back (Use and Occupancy) agreements than you are presently handling.

Earlier Walkthroughs: Final walkthroughs have traditionally taken place on the day of closing, but real estate agents may want to rethink this practice. A more prudent approach is to schedule the walkthrough 3 or 4 days before closing and possibly plan for a second walkthrough the day of closing.

These first few months of the new TRID rule will be tricky and real estate agents should be prepared for possible delays. But lenders have good incentive to act fast. They could face severe penalties if the Closing Disclosure is not delivered on time.

The attorneys at The Levine Law Firm are well-versed on these new federal rules should you have any questions or concerns about their impact on your business.