This series will discuss all the current rule changes that will effect Consumers and the Real Estate industry effective August 1st. The CFPB has issued new rules referred to as TRID which will change the way Mortgage Lending and the Real Estate industry handles the life of the loan process.
Major changes are coming to real estate transactions starting August 1st, 2015. Any transaction involving a mortgage will use the new disclosure forms created by the Consumer Financial Protection Bureau (“CFPB”). NAR has compiled information on this topic on REALTOR.org, and so this article will briefly summarize the changes and then focus on how the changes will affect association form contracts.
The Truth-in-Lending Act/RESPA Integrated Disclosures (“TRID”) creates timing requirements for disclosures that lenders need to make to consumers. Not only will the new forms be used in transactions, the relationship between the lender and other parties like the closing agent and the mortgage broker is now altered because the lender can be liable if certain costs exceed the tolerance limitations set forth in the TRID. In addition, the changes may also delay a transaction if certain changes occur near closing, as TRID requires a three-day waiting period prior to closing and certain changes may cause lender delays.
I. TRID Overview
Through the Dodd-Frank Act, Congress ordered the creation of TRID in order to improve the loan disclosures made to consumers. TRID combines the prior TILA and RESPA disclosures into two forms: the Loan Estimate and the Closing Disclosure. The new forms are required to be used in all transactions starting August 1st, and cannot be used for transactions prior to that date.
TRID contains many intricate requirements for the disclosure forms and this article is merely an overview of these requirements. There are also tolerance limitations that may require a lender to refund fees paid by a consumer if the actual costs paid exceeds the estimated costs by certain factors.
The Loan Estimate is how consumers will apply for a loan. A lender cannot charge a fee except for the credit report until after a consumer has received a Loan Estimate from a lender and has decided to proceed with the transaction. The lender must send the Loan Estimate within three business days after receiving application from a consumer and the final Loan Estimate must be issued at least 7 business days prior to the closing. The cost estimates used by the lender in calculating the Loan Estimate must be made in “good faith”, meaning that the numbers will be presumed to be based on the best information available and the lender may have to refund to the consumer certain amounts if the amounts vary between the Loan Estimate and the Closing Disclosure. A consumer has 10 business days after it is deemed to have received the Loan Estimate to decide whether to proceed with the transaction.
The consumer must receive the Closing Disclosure within three business days of closing. The Closing Disclosure captures all of the costs paid by the consumer, and so any alterations made at the closing table must be reflected in an amended Closing Disclosure following the closing. Three changes will require a new Closing Disclosure and will require a new three-day waiting period: APR changes by more than 1/8%; loan product changes; or a pre-payment penalty is added.