By now you have probably heard about the Truth in Lending/Real Estate Settlement Procedures Act Integrated Disclosure (TRID) rules coming your way on October 3, 2015. Many real estate professionals, particularly lenders and title insurance companies, are diligently working to get ready to implement the new procedures. But what does all of this mean for you, the real estate practitioners?

What is TRID?

TRID involves the new disclosure forms and rules coming courtesy of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). Dodd-Frank charged the Consumer Financial Protection Bureau (CFPB) with creating new disclosure forms for buyers when they apply for a mortgage loan and when they close the transaction. As a result, the HUD-1 and the Good Faith Estimate, as well as the Truth in Lending forms, are going away for most residential transactions. They will be replaced by a new Loan Estimate and a new Closing Disclosure. The TRID rules also create some new timing requirements for the delivery of these disclosures. The lender must deliver the Closing Disclosure to the buyer three business days before closing if personally delivered, and seven days before closing if mailed. This may have consequences for real estate transactions and closings.

What kinds of transactions are affected?

The TRID changes affect transactions where the buyer is applying for a mortgage loan to purchase a residential property such as a house, condominium unit or a timeshare, or is buying a lot and building a new home. The TRID rules and forms apply to most loans extended to a consumer primarily for personal, family, or household purposes and secured by real property.
TRID does not apply to home equity lines of credit, reverse mortgages or mortgages on mobile homes, nor does it apply to agricultural, commercial or business loans.

When does this start?

The new TRID rules officially begin with loan applications made on and after the TRID effective date. For real estate transactions, TRID begins with offers made by those buyers applying for residential mortgage loans. In other words, the TRID rules begin a bit before the effective date for brokers writing offers for buyers who will apply for a loan on or after the effective date.

Lenders will continue to use the prior TILA disclosure and Good Faith Estimate (GFE), and closing agents will continue to use a 2010 HUD-1 Settlement Statement if the loan is not covered under TRID. Loans in progress, which are loan applications submitted prior to the effective date, and the associated transactions are not subject to the new rules or the new forms.

What are the concerns for the real estate transaction?

The biggest potential concern is that the closing will be delayed.

What about TRID can cause a closing to be delayed?

1. Closings may be delayed if the lender has to provide a revised Closing Disclosure. The lender can make some changes and provide a revised Closing Disclosure to the buyer one business day before closing. But other types of changes may mean that the lender must provide a new Closing Disclosure that, once again, must be personally delivered to the buyer at least three business days before closing or mailed at least seven days before closing. This may delay the closing beyond the closing day in the offer to purchase. This will happen if (a) the change increases the disclosed APR by more than 1/8 percent; (b) there is a change in the loan program, for example, the buyer changes from a fixed-rate loan to an adjustable-rate loan; or (c) upon addition of a pre-payment penalty to the loan. 
2. Closings may be delayed if the lender has not completed its underwriting and applicant evaluation, which may be a bit more likely given the new rules and requirements lenders must grapple with under TRID.
3. Closing may be delayed if changes need to be made at the last minute to the Closing Disclosure or other documentation and approval from a distant lender cannot be quickly obtained.

The biggest risk comes from the potential for an increase in the APR. This is the risk that generates the greatest concern and prognostications of closing delays from various commentators. Any idea what may cause such an increase in the APR? That is the million dollar question because few are willing to offer specific examples. One answer is anything that increases the finance charge, another is to ask the lender. The CFPB indicates that this will rarely happen while others fear that a host of last-minute changes may trigger a delayed closing, for instance, reduction of the downpayment, purchase price change, a home warranty plan the buyer decides to purchase at the last minute, or the buyer’s assumption of special assessments discovered at the last minute (could affect the lender’s escrow). 

What steps can real estate agents take to protect the parties from delayed closings? 

It all starts with setting the parties’ expectations and drafting offers that help avoid situations that may trigger last-minute changes and a revised Closing Disclosure:

1. Educate the parties using the WRA Information for Consumers about Transaction Timing and Closings to set their expectations and awareness.
2. Use the WRA Addendum TR when writing offers or include closing date extension language to protect the buyer if the lender compliance with TRID causes closing delays.
3. Avoid extending or setting deadlines for offer provisions or contingencies less than 10 days before closing.
4. Allow ample time for any Financing Contingency or Appraisal Contingency and for the transaction as a whole.
5. Order the title insurance at least 30 days before closing.
6. Consider including other walk-throughs earlier in the offer timeline to confirm completion of repairs and resolve any discrepancies that might affect closing costs. Save the final walk-through to view the property for the sole purpose of ensuring it has not been damaged since the day of the offer.
7. Avoid last-minute negotiations and finalize all details well in advance of closing.
8. Communicate frequently with the lender and title company to provide all information needed regarding closing costs, adjustments and changes to the offer. Make sure you are not the reason the lender cannot be ready with a timely Closing Disclosure.

What else can real estate agents do to help avoid problems in this process? 

Communication with lenders and other professionals involved in the transaction will be key so that everything can be settled and the lender can complete and deliver the Closing Disclosure to the buyer on a timely basis. 

Are there any other steps agents can take to help make sure they are prepared?

Agents should be familiar with the “Your Home Loan Toolkit” booklet from the CFPB. The buyer should receive this within three business days of applying for a loan — they may ask agents questions about it.

It is also prudent to become familiar with the Loan Estimate form and the Closing Disclosure form.

As a last resort, it may be wise to have in mind a contingency plan for what assistance would need to be provided in the event there was a significant closing delay. Consider whether an occupancy agreement (WRA Addendum O) would work and be acceptable to the lender. What else may have to be done as far as accommodations for the parties and storage of their belongings? 

Learning experience for all

The upcoming implementation of the integrated disclosure rules will be a learning experience for all involved. There will be nuances and glitches discovered as the new forms and procedures are implemented that were not previously contemplated. To paraphrase one commentator: “there are things we still don’t know that we don’t know.” The brunt of the new system falls on the lenders and the title companies, but the impact will resonate in transaction timelines, and the ability to close on a timely basis may be compromised.

Real estate professionals need to educate their clients and customers about what has changed and help them understand that the transactions may take longer. In addition, clients and customers also need to be educated about the possibility for closing delays and should be wary of scheduling back-to-back, domino closings. If one transaction is delayed, the whole sequence of closing may also need to be postponed. Finally, real estate professionals need to help their clients understand that attempts at last-minute negotiations could derail the closing, so the parties should try to have all issues resolved well in advance of closing. 

Resources

The WRA created a TRID resource page online at www.wra.org/TRID that includes a whole host of resources from the CFPB, NAR and the WRA.

Also review the WRA's April, May and June 2015 issues of the Legal Updates at www.wra.org/LegalUpdates that cover the TRID changes. 

Debbi Conrad is Senior Attorney and Director of Legal Affairs for the WRA.