For anyone who is currently in the market to buy or sell a home, or for those who have been paying attention to the latest real estate news, you may have heard that there are upcoming changes in the closing process. How these changes will play out and what consequences, if any, they have on the real estate market remains to be seen, but you should at least have a small understanding of what these changes are. While the intentions behind these changes are meant to be beneficial to homeowners, we all know that implementing new changes can have the potential of being a painful process. In this post, we will define what the new TILA-RESPA Integrated Disclosures (TRID) Rule is and what that might mean to you. But before we get into TRID itself, we will take a little time to define a few other terms.
The Hud-1 is a form used by the title company to itemize the various financial charges that are involved in a real estate transaction. Until new changes go into effect, the HUD-1 is required to be given to the buyer and seller one day prior to closing with the intention of giving both parties time to review the form before finalizing the close of escrow.
Truth in Lending Act
The Truth in Lending Act (TILA) is a federal law that was enacted in 1968 to protect consumers from lenders and creditors who may try and take advantage of them and/or use unscrupulous practices. Among other things, TILA regulates what information must be disclosed to consumers when applying for a loan or credit, such as the terms of the loan, the annual percentage rate (APR) and the total cost of the loan/credit. These terms must be spelled out on paper and given to the consumer to review prior to signing on the dotted line. For residential real estate purposes, TILA is an attempt to protect consumers when trying to obtain a mortgage from a bank, credit union, or other lender.
Real Estate Settlement Procedures Act
Similar to TILA, the Real Estate Settlement Procedures Act (RESPA) was also enacted to protect consumers from lenders. First passed in 1974, the act states that lenders must give potential borrowers more information during the loan process to help them make more of an informed decision. Another main provision of RESPA is that it makes it illegal for the various entities involved in the loan process to give kickbacks to each other. So for instance, a title company cannot give a bank a kickback for the bank strong-arming the borrower into use that title company in exchange for a reduced interest rate.
TRID is actually a couple of acronyms within an acronym, standing for TILA-RESPA Integrated Disclosure. One of the ramifications of the housing collapse of the late 2000s was greater attention on the role between lenders and consumers. Some lawmakers and experts felt that forms used when obtaining a mortgage were too confusing and difficult to understand, so they wanted to try and find a way to simplify the process. The old forms have been merged and will be combined into new forms that are supposed to be easier to understand and better at detailing the costs associated with closing escrow. Another major change that will be coming concerns the timeline. Instead of the HUD-1 required to be provided one day prior to closing, the new closing disclosure document must be provided at least 3 days prior to closing. The 3 days will be non-negotiable and the closing date will be required to be pushed back if the 3 days cannot be met. There are exceptions to the rule, such as them only applying to lenders who make five or more loans in a calendar year. But since most Ventura County residents will be obtaining their mortgage through a major lender, chances are you will be dealing with a company that will be bound by this new TRID Rule.
Effect on Ventura County Residents
The TRID Rule was originally scheduled to go into effect on August 1st, 2015. Due to feedback from institutions and professionals in the lending world, the date has now been pushed back to October 1st, 2015 to give companies time to digest and plan for the new changes. How the new changes will affect those trying to buy a home remain to be seen, but many people in the industry expect there to be delays to closing and added headaches within the first few months of the new rules taking effect. If you are currently looking to buy or sell a home, being able to close prior to October 1st will most likely help your transaction go more smoothly. I would not make a decision based solely off of the date for the new rules, but keeping them in the back of your mind may be something you want to consider if you are on any sort of timeline. For those who will be buying or selling a home shortly after October 1st, you should be prepared and expect that your transaction will not go as smoothly as one in the past may have gone. I am sure that the lenders will error on the side of caution to protect themselves, so do not expect them to rush through the process and risk making any mistakes to try and satisfy whatever deadlines you may have.