A day nearly two years in the making is finally here: The Consumer Financial Protection Bureau’s (CFPB) TILA-RESPA Integrated Disclosure rule — which has come to be known as “TRID,” but the bureau prefers that people begin to think of it as the “Know Before You Owe” rule — formally takes effect on Saturday, Oct. 3.
Any loan applications taken Oct. 3 and beyond must follow the 1,800 pages of regulations that the CFPB issued in November 2013. Say goodbye to the HUD-1 settlement statement, Good Faith Estimate and Truth in Lending Act disclosure, and hello to two new forms, each of which must be delivered to the borrower under specific, prescribed timelines:
- A Loan Estimate form that must be delivered or placed in the mail no later than the third business day after receiving the consumer’s application
- A Closing Disclosure form that must be provided to the consumer at least three business days prior to consummation
But TRID is much more than a simple change in forms. It’s a head-to-toe makeover of the mortgage closing process and real estate industry relationships as we have known them for about four decades. Lenders must monitor all parties to the transaction to verify that everyone is compliant, and if they’re not, the lender is on the hook to the bureau. This means lenders will be carefully evaluating their real estate agents, brokers, title and settlement agents and other third-party vendors.
The vetting process varies from lender to lender; some are pre-qualifying all of their partners, while others will be assessing worthy partners on a case-by-case basis. Some lenders will be assuming responsibility for delivery of the new forms, while others will entrust that responsibility to the settlement agent.
With the use of the new forms and obedience to the new deadlines, most compliance experts expect closings to take longer than the traditional 30 days. At a Facebook “town hall” meeting with industry professionals this summer, the American Land Title Association — which has led most of the educational and training initiatives for TRID since the rule was rolled out almost two years ago — cautioned real estate professionals that they should be prepared to share borrower information sooner and expect closings to take longer.
Realtors may also want to do walk-throughs with their customers earlier than they currently do, or even consider doing two walk-throughs, panelists at the town hall said.
“The walk-through is going to have a measurable effect on what the final Closing Disclosure will look like,” said Bill Burding, another ALTA board member and executive vice president/general counsel of Orange Coast Title Co. in Santa Ana, California.
“We recommend that this occurs earlier, which will be a change in how Realtors do business. A second walk-through will change what the Realtor is doing and add more to the Realtor’s plate, but if you’re not looking at this as an opportunity to grow your business, you are looking at it incorrectly. Real estate agents that do an initial walk-through and then do a secondary walk-through are going to be the ones who grow their business because they close on time.”
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Also weighing heavily on everyone’s minds this week is how exactly the CFPB will be monitoring everyone for compliance with the complex regulation, and what kind of action it will take against companies that run afoul of the requirements — even unintentionally. The bureau has conceded that it is impossible to predict every unique scenario that professionals will encounter, and has pledged to take it easy on companies that make at least a “good-faith effort” to comply as they trudge through the real-world implications of TRID.
Earlier this week, members of the House Financial Services Committee grilled CFPB Director Richard Cordray about TRID and other matters. Cordray told lawmakers that any action taken by the CFPB will be “diagnostic, not punitive,” and “there will be time for [financial institutions] to work to get it right and not have to be perfect on the first day.”
Unappeased by the CFPB’s response to a formal “hold-harmless” period, industry trade groups are pursuing federal legislation aimed at giving everyone more guidance and a concrete compliance deadline. One trade group-backed measure, H.R. 3192, would extend an official hold-harmless period until Feb. 1, 2016 and provide relief from civil liability. The bill will be voted on in the House next week.
“It’s kind of like the housing version of Y2K. This is a big deal in the sense that it’s a very dramatic change in the way the loan closing is done — not just which form to fill out, but the process of closing a loan.” – First American Chief Economist Mark Fleming
Meanwhile, some trade groups are warning that some entities still may not be ready to comply with TRID. According to an informal survey of 70 Mortgage Bankers Association (MBA) member companies, a third of respondents said they have not had enough time to test and integrate their software systems and train their employees.
“There also continue to be reports that some vendors have not delivered systems in working shape. These issues are not isolated, as a significant proportion of the industry is concerned that their customers are at risk of failing to close or incurring additional costs in the first few months following the Oct. 3 effective date,” the association said.
The American Bankers Association (ABA) issued a similar memorandum, stressing that many loan origination systems are still in need of updates.
“Only 60 percent of banks report having received production versions of systems by Sept. 1,” the ABA said. “In a few instances, these systems will not be delivered until after compliance deadlines have passed. Other banks state that only portions of the systems needed for full compliance have arrived, with other installments to be delivered later.”
Nevertheless, the CFPB has been unfazed by these revelations, and has been adamant that it gave everyone more than enough time to prepare. Ready or not, TRID is here, said Mark Fleming, chief economist at First American.
“It will come to be known as the day the world changed,” Fleming said. “It’s kind of like the housing version of Y2K. This is a big deal in the sense that it’s a very dramatic change in the way the loan closing is done — not just which form to fill out, but the process of closing a loan. There are fundamental changes that lenders and settlement service providers and real estate professionals will have to figure out and address.
“It will need to be a fast learning curve, and it will take a few months after implementation to iron out the kinks in the process as everyone takes that leap across the rubicon to iron out everything they haven’t yet thought of. Collectively, everyone is invested in the same goal. It’s just a matter of working through it all to get there. I hope everyone is ready for that challenge.”
How is TRID impacting your business? We want to hear from you. Send your stories or questions to Inman writer Amy Swinderman at amys@sandbox.inman.com.
