You may have noticed that recently, just about everyone in the real estate industry has lost their minds. This is because on October 3, 2015, the federal government decided to change the way real estate transactions are settled, and the disinformation out there is staggering.
The new regulations are called TRID, short for TILA/RESPA Integrated Disclosure law. That probably didn’t help much, so let’s break that down.
- The way it used to be.
Before October 3, we had two specific regulations that mortgage lenders and other real estate professionals had to comply with, TILA and RESPA. TILA is the Truth In Lending Act, which required lenders to give you certain disclosures about your mortgage prior to closing. RESPA is the Real Estate Settlement Procedures Act, which required certain disclosures at the time of closing.
Under TILA, lenders were required to give you a Good Faith Estimate of your closing costs and a Truth In Lending Disclosure that set forth the mechanics of your loan. These two documents, along with other disclosures, were supposed to be delivered to you three days after you made application for your loan. If anything changed in those disclosures as the loan progressed towards closing, the lender was required to re-disclose the loan, and was required to wait three days until closing could take place.
Under RESPA, a special statement, outlining all closing costs and settlement fees was required to be used at the time of closing. This document was known as a HUD-1, named after the Department of Housing and Urban Development, which initially promulgated the form.
So we had three forms- the Good Faith, the Truth in Lending and the HUD.
- The way it is now.
Since October 3, lenders are required to provide you with a Good Faith Estimate of your closing costs and a Truth In Lending Disclosure that sets forth the mechanics of your loan. This information is to be provided to you three days after you make application for your loan.
That’s because it’s basically the same process.
The new disclosure is made on an all encompassing document called a Loan Estimate, which is basically a GFE, a TIL and a HUD wrapped up into one. The document contains a little more illustrative information, providing examples of payment options and how quickly you will pay down your loan- but the information is basically the same. They say it’s more comprehensive this way. That’s up for debate.
One change is that at least three days before closing, the lender is required to deliver another new form, called a Closing Disclosure. The CD is very similar to the Loan Estimate, except these are the final numbers. If the lender fails to deliver the CD on time, the closing must be postponed until the borrower has had the CD in his hands for three days prior to closing.
Another change is that the CD will not have the seller’s numbers on it. There is a second document, a Seller’s Closing Disclosure, presented to the seller at closing, which has the seller’s numbers on it, but not the buyer’s. Note that this means there will be no final document with all signatures on it, because we no longer use the HUD. So, many attorneys have begun the use of a third document, called an ALTA Settlement Statement, that has everyone’s numbers on it, and everyone signs at closing.
So let’s see.. same procedure, and basically the same disclosure, except now there are more documents to organize and sign. Easier? That, too, is up for debate.
- How can this affect me?
Really, the only significant change here is the requirement that the CD with the final numbers be disclosed three days before closing. If that’s not done, your closing could be postponed. This has thrown the realtors into a tizzy, because they are concerned that if a problem is discovered during your walk through, and a credit is required, the CD will have to be re-disclosed.
This is not true.
There are only three circumstances under which the CD must be re-disclosed:
1. If the APR changes by more than 1/8%. This has to do with the cost of your loan, and is therefore unrelated to any walkthrough issues.
2. If the lender adds a pre-payment penalty. Again, this has nothing to do with walkthrough issues.
3. If your loan program changes, i.e., from a fixed to adjustable rate. Once again, nothing to do with walkthrough issues.
This doesn’t all fall on the shoulders of the realtors. Many mortgage lenders don’t understand TRID either, and are giving the realtors bad information.
So what can you do? First, choose attorneys that understand the new regulations so that your closing can be as stress-free as possible. Second, be patient while the industry learns exactly what these new regulations mean, and how they need to be applied.