This week, the Consumer Financial Protection Bureau (CFPB) rolled out their new disclosure policy, TRID, and while it is expected to simplify the home mortgage process in the long run, there will most likely be a learning curve, which could result in an initial increase in the number of days it takes to close on a home loan.
What is TRID? It stands for TILA-RESPA Integrated Disclosure Rule. The Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act of 1974 (RESPA) both resulted in disclosure forms that were required to be provided to borrowers before closing on their homes, but because these two forms were created separately, they didn’t mesh well, and they confused borrowers and slowed down the process while lenders tried to break all this disclosure language down for consumers.
The first part of TRID combines these two forms into the Loan Estimate; one form that explains all the costs and risks they are about to take on. The CFPB requires that lenders provide this form to borrowers at most, three business days after they apply for a home loan. The second part of TRID takes two disclosure forms pertaining to the closing of the loan, and combines them into one form called the Closing Disclosure. Again, this form is intended to tell consumers, in plain language, about all the costs associated with closing the loan.
All of this integration is meant to educate, inform and protect borrowers, but anytime a sweeping change is made to a process that involves so many entities – not just borrowers and lenders, but also banks, title companies, realtors, appraisers – there is going to be an adjustment period.
We’ve only just entered that adjustment period, with TRID taking effect on October 3, 2015, so it’s hard to say exactly how it has affected things, but financial experts have been predicting longer closing times, at least at first. Terry Moore, the Senior Managing Director at Accenture Credit is quoted in HousingWire, “‘For at least the next several months, it is likely that borrowers will have to wait several days longer to close on their homes.’” Moore says the average right now is about 45 days to close. Everyone involved in the process will have to adapt to the new timeframes and the new requirements, or there could be big delays when one piece of the puzzle doesn’t quite fall into place.
Moore does point out that these new disclosure regulations will ultimately simplify, clarify and aid consumers in “avoiding unpleasant surprises at the closing table,” so in the long run, it’s worth these growing pains, when you consider that the last housing bubble burst, in part, because some consumers were uninformed about, and unprepared for, the risks they were taking.
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Additional resource: Consumer Financial Protection Bureau’s TILA-RESPA Integrated Disclosure Rule: Small Entity Compliance Guide.