TRID is an acronym that stands for TILA-RESPA Integrated Disclosures. The rule took effect in 2015 to harmonize the Real Estate Settlement Procedures Act (RESPA) and Truth in Lending Act (TILA) disclosures and regulations. TRID was created to allow potential homebuyers to easily hunt for the best deal on a mortgage by mandating lenders to deliver standardized and transparent details about loans. It also guards homebuying against confusing or misleading lending practices.
TRID is a series of guidelines enforced by the Consumer Financial Protection Bureau (CFPB) that tries to close some of the loopholes that dishonest lenders have used in the past to trick consumers. TRID rules dictate what mortgage information lenders need to provide to borrowers and when they must provide it. TRID rules also regulate what fees lenders can charge and how these fees can change as the mortgage matures.
This blog talks about the various features, requirements, and benefits of TRID compliance in brief. So, let’s begin.
History of TRID
For several years, the Consumer Financial Protection Bureau (CFPB) had been working to harmonize the Real Estate Settlement Procedures Act (RESPA) and Truth in Lending Act (TILA) disclosures and regulations.
On July 7, 2017, the CFPB released a final rule amending the TRID mortgage disclosure rule and explained the ability to share the Closing Disclosure (CD) with third parties. The final rule became effective on October 10, 2017, with mandatory compliance required by October 1, 2018. Simultaneously, as that final rule was released, the CFPB issued a proposed rule looking at the outstanding "black hole" issue related to creditors' ability to use a CD to reflect changes in costs imposed on consumers. A final rule on this topic became effective on June 1, 2018, offering additional needed clarity to the lending industry.
The CFPB continues to update its TILA-RESPA Integrated Disclosure Frequently Asked Questions (FAQs), ensuring compliance with TRID-RESPA Integrate Disclosure Rule and scrutinizing the efficacy of the rule, to consider changes in the future.
TILA & RESPA
Though TRID guidelines are relatively new, there are a few fundamental legal prerequisites that have governed lenders for over four decades. As mentioned earlier, TRID is a combination and condensed version of two such regulations: the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA).
Let’s learn a bit more about them.
The Truth In Lending Act (TILA)
The government introduced TILA regulations in 1968 to dissuade dishonest credit lending practices. TILA, and its subsequent Truth-in-Lending disclosures, guard borrowers from unfair credit and credit card billing practices by requiring that lenders offer them written documentation on your loan well before you must sign to lock in the rate.
TILA mandates lenders to provide consumers with upfront information about interest rates and payments before the mortgage document is signed on for most types of loans, and also gives them a grace period of at least 3 days in which they can back out of the loan without any loss. This is also known as the right of rescission.
The Real Estate Settlement Procedures Act (RESPA)
RESPA regulates settlements and protects borrowers from unfair real estate practices. Under RESPA regulations, mortgage lenders must provide them with information on settlement services, consumer protection, laws, and real estate transactions before they borrow money so consumers can more accurately estimate their ongoing fees and expenses.
RESPA also eradicates the practice of referral commissions, which can increase the cost of the loan at the last minute. RESPA also manages the use of escrow accounts, that hold money in a third-party space with the release only under specific conditions and restricts lenders from demanding enormous amounts of money held in escrow before the loan is approved.
Disclosures TRID requires
A while ago, TRID required four documents that were used for a loan to get approved:
- HUD-1 statement
- Truth-in-Lending (TIL) statement
- Truth-in-Lending disclosure
- Good Faith Estimate (GFE)
Once the TRID guidelines were changed, these four documents were simplified into two:
- Loan Estimate (due at application time)
- Closing Disclosure (due just before closing)
The Loan Estimate
A Loan Estimate is an assessment of the principal, interest rates, closing, costs, and mortgage features that the borrower qualifies for. Though Loan Estimates may change from the start of the mortgage process till the end, the lender cannot significantly vary the agreement terms and must provide this good faith estimate during the preapproval process.
These Loan Estimates can be by from numerous competing mortgage companies to understand how much mortgage can be afforded and who can offer the lowest rates. Essentially, Loan Estimates permit the borrowers to shop for better interest rates.
The Closing Disclosure
The Closing Disclosure is received when it’s time to sign on the dotted line and finalize the mortgage. The Closing Disclosure lays out the same ideas as the Loan Estimate, along with specific and exact interest rates, principal amounts, closing, costs, and terms.
It is advisable to compare the Loan Estimate to your Closing Disclosure, and both documents should be similar to one another. If rates, fees or your principal have changed significantly from the Loan Estimate, then the lender is answerable.
The TRID Guidelines
Most mortgage lenders have to follow TRID guidelines when a borrower seeks a loan. Some TRID rules that the lender needs to adhere to include:
No application fees:
Under TRID rules, a mortgage lender may not charge a fee before they offer a Loan Estimate. The only fee that a lender may charge before they issue a Loan Estimate is a fee to run the credit report.
Fast delivery of the Loan Estimate:
The lender must issue the Loan Estimate within 3 days after they receive the application. This helps a borrower time to ask their loan originator any additional questions they may have.
Keeping Estimates and Disclosures on file:
The lender has to keep a copy of the Loan Estimate for at least 3 years after the borrower has signed the mortgage. The lender needs to keep a copy of the Closing Disclosure for at least 5 years after the loan is signed.
Waiting period for Closing Disclosure:
The mortgage lender needs to provide the Closing Disclosure at least 3 days before the loan is signed.A borrower needs to wait 3 days from the time he/she receives the Closing Disclosure before it’s signed. If any changes are requested to the Closing Disclosure. In that case, the lender has to provide a new contract, deliver it and the borrower gets an additional 3 days until the loan is finalized.
Your lender must provide you with their contact information and a way to contact their loan officer in your Loan Estimate.
Benefits of TRID for Home-Buyers
A borrower is protected under TRID regulations against high-pressure or dishonest sales tactics, ensuring that the borrower knows the details before signing the loans.
However, TRID also introduces a new layer of responsibilities that the borrower needs to uphold,to remain fair and transparent. Once the lender is chosen, the customer needs to contact the mortgage provider of choice and sign an Intent to Proceed document.
The document is mandatory for the lender to continue with the mortgage process. The borrower also needs to contact the lender and acknowledge when he/she receives the Closing Disclosure so the lender can start the 3-day “timer” before the borrower closes on the loan.
It is important to keep in touch with the mortgage lender as this speeds up the borrowing process and helps the lender adhere to the TRID regulations.
Benefits of TRID for Mortgage Lenders
TRID helps in a better lender-borrower engagement. Unlike the time before TRID, the lender is the responsible party for creating the Closing Disclosure. Previously, this was the duty of the closing agent, and there were no objective, standard methods for ensuring that the disclosure was complete and accurate. With TRID, there is more opportunity for two-way communication throughout the lending process.
TRID provides an opportunity for more customer interaction, which offers a better relationship. Since most borrowers aren’t aware of the details regarding the entire process, the lender has the chance to create a strong rapport with the borrower by communicating the intricacies of the process at every step.
TRID helps to educate the borrowers in terms of the mortgage loan approval process. The TRID guidelines help in eliminating the chances of more mistakes in declarations, and minor dead-end conversations about things that aren't clear to the borrower.
An educated, informed borrower will land up asking the right questions. This means that the entire sequence of events in the closing is more streamlined, quick, and with a limited number of interruptions.
The Bottom Line
TRID is a string of guidelines that dictate what information lenders need to furnish to borrowers and when they must provide it. TRID rules also regulate what fees lenders can charge and how these fees can change as the mortgage matures, TRID acts as a shield for both parties against any dishonest means of lending, malpractices, or, misinformation. For both borrowers and lenders, TRID can help secure the best mortgage possible without the plethora of headaches that usually come with loan approvals.
Vaultedge Mortgage Automation (VMA) adheres to the TRID guidelines while extracting data from loan documents. VMA quickly performs pre- and post-close TRID compliance checking after data extraction by comparing more than 1,000 data fields between multiple documents using an advanced rules engine for accuracy ensuring TRID tolerance thresholds are not violated.
If you want to know more about how Vaultedge employs TRID guidelines while indexing and, extracting borrower’s data, then connect with us.