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August 2015 Member Outreach
- 2. SPEAKER BETSY URBANCE Illinois Association of REALTORS® Legal Counsel #CAROutreac h WIFI NETWORK: ADA-WPA-Guest PASSWORD: ADA76255
- 3. TILA-RESPA INTEGRATED DISCLOSURE (TRID) Presented by Betsy Urbance Sorling Northrup, Atttorneys IAR Legal Hotline Attorney
- 4. • Was originally scheduled to be effective August 1st • Now, after a rule change, implementation date of October 3rd It WILL be implemented, so it’s best to prepare NOW TRID: Coming Soon??
- 5. Current Practice • TILA: Initial Truth in Lending and Good Faith Estimate • RESPA: HUD-1 and Final Truth in Lending TRID: Background
- 6. Economic Crisis • Dodd-Frank Wall Street Reform Act • CFPB Directed to Consolidate and Improve Disclosures Related to Home Loans • Result: TRID – 1800+ Pages of New Regulations TRID: Background
- 7. Rules are effective October 3, 2015 • Contracts entered into prior to October 3rd will be closed using the current forms, i.e., GFE and HUD-1 • Initial TILA/GFE replaced by “Loan Estimate” • Final TILA/HUD-1 replaced by “Closing Disclosure” TRID: The Basics
- 8. What Is It? • Combination of Good Faith Estimate and Initial Truth in Lending disclosure • Must be delivered by hand or placed in mail within 3 BUSINESS DAYS of the application by consumer for financing… o Business Day: If lender is open on Saturday – then count it. • Cannot be delivered any later than 7th business day prior to consummation of loan • Consumer has 10 days from their receipt to express intent to go forward with the loan • Creditor cannot charge consumer for anything other than ordinary credit-check costs prior to consumers “acceptance” of the loan • What IS and what IS NOT an “Application” matters! TRID: Loan Estimate
- 9. “Application” Requires 6 Items • Name • Income • Social Security Number • Address of Property to be Purchased • Estimated Value of Property • Amount of Mortgage Loan Requested TRID: Loan Estimate
- 10. Good Faith Estimates Loan Estimate provides a good faith estimate of the credit and closing costs for the transaction • Estimates must fall within pre-determined “tolerances,” which depend on the type of cost incurred • Zero Tolerance: These are items that are charged by the creditor for the creditor’s benefit or paid to an unaffiliated third party for which the borrower was not allowed to shop. • 10% Tolerance: Charges by third party service providers – based on cumulative amount • Consumer is permitted to shop for these service providers using a list provided by the creditor • No Tolerance: Charged by third party service providers NOT on the list provided by the creditor (or costs not required by creditor), plus prepaid interest, property insurance premiums, and amounts placed in escrow TRID: Loan Estimate
- 11. Revising the Loan Estimate Only permitted in cases of “changed circumstances,” which include: • An extraordinary event beyond the control of any of the parties or other unexpected event specific to the consumer or the transaction (i.e., natural disaster, health emergency) • Information specific to the consumer or transaction that the creditor relied upon when providing the Loan Estimate was inaccurate or has changed (i.e., loss of job/income, appraisal value too low) • New information specific to the consumer or transaction that the creditor did not rely upon has come to light (i.e., additional source of income) TRID: Loan Estimate
- 12. Pre-Approval Letters Are Still Allowed • Must contain disclaimer now • Lenders will need to create systems to prevent disclosure by consumers of the 6 key pieces of information in order to process both Pre-Approval and Pre-Qualification letters TRID: Loan Estimate
- 13. What Is It? • Combination of Final Truth In Lending Disclosure and HUD-1 • Disclosure of true or actual costs associated with the financing – replaces the HUD-1 • Must be delivered 3 BUSINESS DAYS prior to the consummation • Business Day: ALWAYS count Saturday! TRID: Closing Disclosure
- 14. 3-Day Rule Can be re-set in the following 3 circumstances: • Change to loan’s APR • Change to loan product itself • Addition of pre-payment penalty • 1-Day Review Rule • Consumer must be allowed opportunity to review revised Closing Disclosure one day prior to closing TRID: Closing Disclosure
- 15. Delivery • May be provided in person, by mail, or by email • If delivered in person, considered received by consumer on day it is provided • If mailed or delivered electronically, consumer is considered to have received it 3 business days after it is delivered or placed in the mail o Unless creditor has evidence that consumer received it earlier TRID: Closing Disclosure
- 20. CFPB provided the following example based on these facts: • Loan application received by lender on October 5th • Anticipated closing date December 30th TRID: Example
- 21. TRID: Example
- 22. TRID: Example
- 23. There are still a lot of unanswered questions: • For instance, division of responsibilities between settlement service providers and lenders still up in the air • CFPB enforcement still up in the air (“flexible” enforcement?) • Effect on number of closings and simultaneous closings, still up in the air • Finally, effect on local contracts, still up in the air TRID: Conclusions
- 24. Good News! • Brokers’ commissions are not directly impacted • Indirect impact could result from longer closing windows • The impetus for the new rules is to make borrowing to buy a home an easier process to understand TRID: Conclusions
- 25. New “News!” • There is still discussion at national level about delay of enforcement – pending legislation • Website resources • http://www.illinoisrealtor.org/respa • http://www.realtor.org/field-guides/field-guide-to-the-tila- respa-integrated-disclosure-rule-trid • http://www.consumerfinance.gov/know-before-you- owe/real-estate-professionals/ TRID: Conclusions
Editor's Notes
- Good Morning. My name is Jeff Baker and I am an attorney with Sorling Northrup, which is counsel for the IAR. I am going to be speaking fairly quickly this morning because I only have 30 minutes and the subject material is complicated and lengthy. So what is today’s subject: its TRID [pointing to screen] or the TILA – RESPA Integrated Disclosure Rule and its coming soon to a transaction and closing near you.
- Well the “so what?” was the economic crisis and what Congress saw as a fundamental problem with people not understanding the terms and conditions of their loans so among the other results of the crisis, Congress passed the Dodd- Frank Wall Street Reform Act. Dodd-Frank directed the newly created CFPB to consolidate and improve the disclosures under TILA and RESPA so buyers would have a better understanding of what they signing up for when applying for and obtaining a home loan. The result was that the new agency did what all federal agencies do really well and that is they came up with a brand new regulation that was a quick read and didn’t leave any gray area whatsoever… In actuality, we have a new 1800+ page regulation and obviously, a lot of unanswered questions…which…is why I am here today, to try to very briefly, walk everyone through the new rule.
- So TRID, what are the basics of the new rule? Ok, so first of all, the starting date is August 1st – transactions or contracts entered prior to that date will be closed using the old (or current) forms – regardless of when they actually close. Second, the initial truth in lending form and the good faith estimate are gone and we now have what is called a “Loan Estimate.” And third, the final truth in lending form and the HUD-1 are gone, and we now have what is called a “Closing Disclosure.” What is a Loan Estimate exactly????
- The LE combines the GFE and Initial TIL in an attempt to give consumers the best possible prediction of all of the costs that are going to be associated with the financing of their new home. One of the biggest changes under the new rules is that this new disclosure form must be sent to consumers within 3 business days of the application being submitted by the consumer and must be no later than the 7th business day prior to the consummation of the loan – or the day on which the borrower becomes obligated on the underlying note (which in Illinois is most likely going to be the closing date). Ok, seems easy enough right? Well a couple of quick notes on the LE. First of all, “business days”…remember, if a lender is open on Saturdays, then that day counts. Second, what is and what is NOT an “application” matters and let me explain why…
- First, quickly, an application under the new rules is when a consumer submits these six key pieces of information to a lender. It does not matter in what form the information is submitted AND it does not matter if the lender requires more time to conduct more thorough credit checks and investigations – all that matters is that these six key pieces of information are submitted and the 3-day clock is ticking. Well, what about pre-approval letters then? How does a consumer obtain a pre-approval without triggering the 3-day clock???
- PAL’s are still allowed. But lenders are going to have to do some amount of gate-keeping to prevent consumers from divulging certain information that would trigger that 3-day clock. AND all pre-approval letters must now come with disclaimer language clearly printed on it in CAPS providing that this is not a Loan Estimate and the consumer should obtain a Loan Estimate if they want a clear picture of the costs associated with the financing.
- I’ve included just a couple screen shots of the Closing Disclosure so you can see it if you haven’t already looked it up. I’ve highlighted a couple of the most important parts…on this Page 1 of the Disclosure, you can see all of the borrower’s information as well as information about the loan itself in the top right corner.
- This is the bottom of the first page and what I wanted you to see here is what the agency has tried to do in making the exact closing costs and cash to close very apparent to the borrower.
- And finally…this is page 2 of the Disclosure – which remember is actually 5 pages long…but this page shows you the categories of costs charged for the closing, whether they are charged by the lender or a third party, who pays for them AND most importantly it shows you the totals for each category and these are the numbers that are compared to those provided on the LE to see if the lender actually stayed within the pre-set tolerance limitations. So this is what the main part of the Closing Disclosure looks like…you can tell its already different than the HUD-1 that everyone is used to so there will be some learning curve as everyone gets used to locating certain information on these forms. Ok, so now what???
- So with that, I know I spoke incredibly fast and for that I apologize but as you can there is a lot here and let me tell you, I didn’t even scratch the surface on some of the other minor details of TRID. But what we wanted to get across to you the AE’s is that your contracts are going to need reviewing by you and your board counsel and in order to make this as smooth a transition as possible, its best if that starts happening sooner rather than later. Thank you all.
- So with that, I know I spoke incredibly fast and for that I apologize but as you can there is a lot here and let me tell you, I didn’t even scratch the surface on some of the other minor details of TRID. But what we wanted to get across to you the AE’s is that your contracts are going to need reviewing by you and your board counsel and in order to make this as smooth a transition as possible, its best if that starts happening sooner rather than later. Thank you all.