Back in the 1970s the federal banking regulators required lenders to give two disclosure forms to borrowers to explain the cost of money and fees. These two forms were the Truth in Lending and Real Estate Settlement Procedures Act and were given to borrowers quickly upon applying for a mortgage so there would be no unpleasant and costly surprises later on, like when you are signing your loan documents a few days before closing. These were what we called “good faith estimates,” not hard final figures.
Well, after the real estate and banking meltdown nearly a decade ago, Congress decided to reform the banking industry by imposing stricter regulations to minimize the lending excesses that took place then. As a result, in 2008, Dodd-Frank was created with a phase-in over time of new tighter lending laws designed to protect the consumer.
Back in October, another aspect kicked in that could delay many real estate purchases by mandating more time for consumers to review costs before they sign their loan paperwork. Gone now are TIL and RESPA. I’m sure most of you are getting teary-eyed over their loss!
But don’t worry because they are being replaced by Truth in Lending, RESPA and Integrated Disclosure. I know for most of you this is too exciting for words and should you want to know more, they are spelled out in 120 pages of scintillating government legalize.
Just replacing two government acronyms with one is cause for celebration in itself. So what is TRID and what’s it going to do? Well, it’s not going to make your spouse love you more or get your kids so pumped up they will take out the garbage without asking. It does simplify, somewhat, the lending costs by combining a few forms into one called the Loan Estimate. More importantly, it mandates that the bank give hard numbers (as opposed to estimates) on all these costs, which cannot vary by more than 1/8 of a percentage point.
The other aspect that kicks in is the one that can potentially delay the closing date by requiring the borrower to have a three-day mandatory review period on the final closing statement. In some ways this is similar to the three-day recession period on all refinances, however the close date on loan refinancing can slip by a few days with no repercussions, since you are already in the house.
So, when the underwriter finally blesses your loan, this Loan Estimate is generated, which in turn triggers the creation of the loan papers that are sent to the title company. But, unlike before, you can’t sign these papers because you have to wait three business days while you study the Loan Estimate. Also, if your loan terms or purchase contract change by more than 0.125 of a percent, then the Loan Estimate goes back to the underwriter for another review and the three-day period starts over again. Another thing that you’d never see or know about is how these changes affect the backroom operations of banks and title companies as they are forced to change their computer programs to implement this. Some banks will be good about handling this, while others will take longer, thereby impacting your loan. Over time this will resolve itself, but, in the short term, this can be a big problem for lenders, buyers and sellers.
It’s hard to summarize 120 pages of government lingo into 700 words, so keep the following in mind: Add three days to your close of escrow date because of the mandatory waiting period. Have a frank conversation with your lender about this and ask how it affects the processing time of your loan. You may hear that your lender can’t do 30-day closes now and need more time, so factor that into your offer. Don’t make significant changes to your loan or purchase contract once everything is approved or you will delay your close of escrow even more. Be patient as things may be somewhat fluid, which is easier said than done when movers have to be scheduled and another property sale may be dependent on this closing. And, if you find you still have extra time or have trouble falling asleep, read the 120 pages on TRID.