What you need to know about TRID regulations and compliance
The latest TRID rules, which are apart of TILA- RESPA, have been in effect since the fall of 2015. Almost a year later, we’re still finding financial institutions and appraisers are a little iffy about what TRID is and who it affects. And that’s not surprising. A 2015 report suggests that despite the new regulations, TRID violations were found in 90% of recently reviewed mortgages. That’s a lot of violations for something that is seemingly crystal clear. So, let’s start with the basics. What is TRID and what does it affect? TRID affects the loan process in that it changes the way the lending disclosures are presented and who presents them. The lender now is responsible for the closing disclosure instead of the title company who would traditionally prepare the HUD-1 after receiving the fees from the lender. This change shifts the responsibility of these disclosure onto the lender. The idea is that the shift will make the settlement process run smoother and with less error, but many are still wondering if that is the case. The good news? TRID doesn’t affect commercial real estate at all.
TRID is a part of the TILA-RESPA rule. The TILA-RESPA rule consolidates four existing disclosures required under TILA and RESPA for closed-end credit transactions secured by real property into two forms. First, a loan estimate must be delivered or placed in the mail no later than the third business day after receiving the consumer’s application. Second, a Closing Disclosure must be provided to the consumer at least three business days prior to consummation. This is great news for the consumer because it allows them time to go through the documents to check for any errors or become more familiar with them. Since these documents tend to be confusing for some people (which leads to uneducated decisions), the regulations allow for consumers to feel comfortable to ask questions and gain an understanding of what the documents say. Ideally, the new rule is basically an attempt to improve or correct any faults with the current regulations, and in essence, fewer mistakes should be made.
So, beyond consumers, who else is affected by TILA-RESPA? The TILA-RESPA rule applies to most closed-end consumer credit transactions secured by real property. Credit extended to certain trusts for tax or estate planning purposes is not exempt from the TILA-RESPA rule. (Comment 3(a)-10). However, some specific categories of loans are excluded from the rule. Specifically, the TILA-RESPA rule does not apply to HELOCs, reverse mortgages, or mortgages secured by a mobile home or by a dwelling that is not attached to real property. (i.e., land). (§ 1026.19(e) and (f)) (§§ 1024.5, 1026.3, and 1026.19)
The rule also does not apply to loans made by a person or entity that is not considered a creditor. (§ 1026.2(a)(17)) There is also a partial exemption for certain transactions associated with housing assistance loan programs for low- and moderate-income consumers. (§ 1026.3(h)) However, certain types of loans that are currently subject to TILA but not RESPA are subject to the TILA-RESPA rule’s integrated disclosure requirements, including: construction-only loans, loans secured by vacant land or by 25 or more acres. Credit extended to certain trusts for tax or estate planning purposes also are covered by the TILA-RESPA rule. (Comment 3(a)-10)
This is all to say that banks should work hard to make sure their estimates are accurate. Otherwise, there’s a chance you’ll have to cover the difference in quoted prices. Further, it’s important to understand the fees that will be charged for the appraisal prior to communicating them to the borrower. At MountainSeed, we typically advise building TRID reports on your residential appraiser panel and outlining the fees that each appraiser charges for each form type. Then put the highest fee into the disclosure. When thinking through these things, be aware that a financial institution will still need to pay your appraisers “customary and reasonable” fees. Make sure your appraisers understand the fees, too. It’s not a great idea to set a fee for your disclosure and then mandate that fee to an appraiser without them first understanding if that fee is reasonable for the marketplace. Instead, allow appraisers to set their own fees for residential properties, and consider bidding commercial ones. Then assign appraisal assignments on a rotation. This is a practice we’ve put into place at MountainSeed, and one we can definitely recommend.
The change in regulation brings more responsibility and burden on the lender, but the increased clarity of the transaction benefits everyone in the long run. With regulations like TRID, everything should run like a well-oiled machine and with less possibility for error.