TRID Explained: What You Need to Know About the New Closing Disclosures
TRID? What the heck is TRID? TRID is an acronym of mortgage acronyms, and it is the new closing disclosures that came out of the Dodd-Frank Act, thanks to the mortgage crisis.
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TRID stands for:
- TILA (Truth In Lending Act)
- RESPA (Real Estate Settlement Procedures Act)
…and it goes into effect October 1, 2015.
Let’s break all that down into small chunks.
According to Wikipedia, the Truth In Lending Act “…promotes the informed use of consumer credit, by requiring disclosures about its terms and cost to standardize the manner in which costs associated with borrowing are calculated and disclosed.”
And the Real Estate Settlement Procedures Act “…requires that lenders provide greater amounts of information to prospective borrowers at certain points in the loan settlement process.”
Because of all the confusion with the current TILA and RESPA, they are being married, sort of, into a new form called TRID. In the past, the HUD-1 statement has been given to the two parties to a contract one day in advance. The problem with that is sometimes that one-day notice came at the very end of the day before closing, or even the day of closing, giving the buyer very little time to read and decipher everything on the page.
Super-fun closing story: The first house my dad ever bought, he sat down at the closing table and the closer gave him the first page along with the little explanation they do so you don’t have to read all those words. My dad took the page from her and started to read. After a minute or so, she said, “Oh, you don’t have to read it, just sign at the bottom.” He replied, “I don’t sign anything I haven’t read.” My dad is a pretty stubborn guy. I can only imagine the thoughts running through that closer’s head. That was probably the longest closing of her life!
Big Changes to Mortgage Closings
But back to TRID. With the housing crisis and mortgage catastrophe came new regulations to make sure buyers understand what they are getting themselves into. The old forms were cumbersome and confusing. Closing officers sometimes had difficulty explaining them to buyers.
So the forms have been merged. The old Good Faith Estimate and initial Truth In Lending disclosures are now combined into the Loan Estimate, which was designed to help buyers understand the costs and risks of their new mortgage.
The HUD-1 and final Truth In Lending disclosures have been combined into the Closing Disclosure, which details the costs associated with closing the transaction.
But the biggest change, the one that can affect you as a buyer or seller, is the new timeline. Lenders are now required to give the buyer these documents at certain times throughout the process, and if they do not, the closing must be pushed back.
The new Loan Estimate must be delivered no later than 3 business days after the loan application is submitted. However, the Closing Disclosure is the big potential wrench in the plan. The Closing Disclosure must be provided at least 3 days before closing, and those 3 days are non-negotiable. The closing date must be pushed back to accommodate those 3 days.
As with any government program, there are exceptions to these rules. They only apply to real estate transactions that are being funded by lenders who are considered creditors. If you make less than 5 loans in a year, you are not bound to these new regulations. They also don’t apply to HELOCs, reverse mortgages or loans secured by mobile homes or dwellings not attached to real property.
The waiting period can be waived, but only in dire financial circumstances, such as an imminent foreclosure. The borrowers must provide the lender with a dated written statement describing the emergency and specifically amending or waiving the waiting period. The statement must be signed by all parties to the contract on the buyer’s side. The waiver may not be a pre-printed statement from the lender.
How Does This Affect Investors?
So these new rules and procedures mainly affect retail buyers. Why should investors care? For buy-and-hold investors, this won’t be much of a change. It will have the most effect on flippers, who typically sell their flips to those retail buyers.
There are very specific circumstances that can change the loan terms, which would require a new Closing Disclosure be given to the buyer, which comes with its own 3-day review period. If this happens more than 3 days before closing, your deal will probably go through as planned. But if this happens less than 3 days before closing, your deal gets thrown off.
These new disclosures were originally set to take effect August 1, 2015, but feedback from the lending institutions has pushed the new deadline to October 1, 2015. Keep these dates in mind if you have properties on the market or coming to the market soon. Closing before October 1 could help your deal go more smoothly. For properties that are closing in the first few weeks or even months of these new changes, you could experience some delays while the closing companies work out the bugs.
If you do come across a delayed closing due to these new rules, consider writing an Amend/Extend to change the date of closing. While this delay may eat up a few days, it is better than trying to find a new buyer. However, I would not ever recommend allowing the buyer to occupy your home before closing. Even for just a day. There are so many things that can go wrong with this, I couldn’t even begin to list them all.
As the lending institutions and closing companies work through these new loan disclosures, expect some initial problems. But patience and understanding can go a long way to saving your deal.
Have you ever had a deal that went sideways near the close? How did you save it?
Leave me a comment below, and let’s discuss.