If you hear someone talking about the TRID rule, chances are you won’t have any idea what it is. In a nutshell it has to do with loans.
Here’s a more thorough explanation:
The Dodd-Frank Act required the Consumer Financial Protection Bureau (CFPB) to propose a rule that combines and integrates the disclosures under the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA). The final rule became effective for most loans applied for on or after October 3, 2015.
For those loans, the rule requires the use of new, integrated disclosure forms for consumers at the time of application and settlement, known as the Loan Estimate (LE) and the Closing Disclosure (CD). The LE is intended to integrate RESPA’s Good Faith Estimate (GFE) and TILA’s Early Truth in Lending (TIL) disclosure) while the CD is intended to integrate the Final TIL and the HUD-1 settlement statement.
In addition to new forms, the rule brings major changes to the mortgage origination and closing process, including changing the definition of application, clarifying responsibilities for providing the forms, establishing tighter tolerances or limits on cost increases from application to closing, and installing a three-day review period between provision of the CD and consummation of the loan.
If a creditor makes certain changes between the time the CD is provided and closing, a revised CD must be provided to the borrower and an additional three business days must elapse from the time the borrower is provided the revised CD until closing.
Considering the complexity of the rule and the significant resources required to implement it, the CFPB has stated that it will be sensitive to “good faith” implementation efforts and that early examinations for compliance will be more diagnostic than punitive.
What is the impact of the TRID rule?
- It constitutes a bevy of change for lenders, settlement service providers, real estate agents and consumers.
- It has necessitated considerable expenses for systems and business process changes, training and other needs – costs ultimately borne by consumers.
- Since its implementation, the many lingering open questions, misperceptions and technical ambiguities in the rule have resulted in significant market disruptions. Investors and due diligence firms have taken an extremely conservative interpretation of several aspects of the TRID rule and the physical disclosure display requirements, resulting in a very high percentage of loans being held in suspense, rendered unsaleable, or forcing lenders to sell loans at a significant discount in a “scratch and dent” marketplace.
- The jumbo loan secondary market seems to be experiencing the most acute disruptions, specifically for whole‐loan trading and private‐label securitizations.
- Many of the errors are minor or technical in nature, such as issues with the alignment or shading of forms, rounding errors, time stamps or boxes that are improperly completed on the LE.
- Compounding these errors is investor uncertainty regarding whether, and under what conditions, a CD can cure or correct the LE for those data fields that are not subject to either tolerances or re‐disclosures enumerated under the TRID rule.
- If these conditions persist, many lenders could experience liquidity issues as unsold or repurchased loans clog warehouse lines and balance sheets.
It is yet unknown how Fannie Mae and Freddie Mac and the Department of Housing and Urban Development (HUD) will view TRID compliance. For now the GSEs and HUD are honoring the grace periods but soon they will begin applying their own interpretations of TRID to their post‐close quality control, repurchase (GSE) and claims review (HUD) processes.