As of this entry, mortgage lending has been impacted by TRID for approximately six months. Now that we have had some time to process TRID, what are some of the changes it has caused within the title industry?
First, however, a little background. The Consumer Financial Protection Bureau (CFPB) was created by the Dodd-Frank Wall Street Reform and Consumer Protection Act to police banks, lending institutions, and other consumer-oriented companies following the mortgage meltdown and Great Recession that started in 2008.
The CFPB merged the Truth In Lending Act (TILA or Regulation Z) and the Real Estate Settlement and Procedures Act (RESPA or Regulation X). These new rules are referred to as the TILA-RESPA Integrated Disclosure Rules, or TRID.
There are a few myths about TRID that we know are false. For example:
- TRID requires the closing disclosure (CD), which replaces the HUD-1 Settlement Statement to be delivered to the buyer three days prior to closing. The myth is that this three-day rule is a 72 hour rule and that is false. Three-days means three business days, rather than 72 hours. Therefore, a closing on Thursday would require the CD to be delivered on Monday, at any time on Monday during business hours regardless of when the CD is delivered and the time of the closing.
- The Lender will prepare and send the CD. This is false; many lenders still have the title company prepare the CD far in advance and send it to the lender, who then takes on the responsibility to send the Buyer's CD to the Buyer. The Lender typically only sends the Buyer's CD; the Seller's CD (did you know there was one?) is sent to the Seller from the title company.
- ANY change to the Buyer's Closing Disclosure requires a new three day disclosure period. Again false; any change to the Buyer's Closing Disclosure requires a new disclosure, but only 3 changes re-set the 3-Day disclosure rule: (1) a change in the APR, (2) a loan product change, or (3) the addition (but not subtraction) of a Pre-Payment Penalty.
Another TRID change, the CD is NOT a disbursement document like the old HUD-1, although it does completely replace the HUD-1. Therefore, the title company will have to create some type of disbursement document, which could be internal, company-specific document or a document utilized by the title insurance underwriter.
The other change of note was to the way that title insurance is calculated. Prior to TRID, title insurance was based on the contract price for the owner's policy, with a simultaneous issue rate of a minimum of $25 for the lenders policy. TRID now requires the title insurance to be calculated as if the loan amount is the amount of insurance to be purchased. The owner's policy is then calculated as a marginal increase based on the difference between what the full premium would have been under the old method, less the amount of the lender's policy. To the reader that thinks, "this sounds confusing," you're correct. Many informed and educated industry professionals failed to understand or comprehend this calculation at first, and we still find people who believe title insurance was calculated incorrectly on the CD.
For the most part, Yesner Law, P.L., and me personally, have been very supporting of the CFPB and believe the CFPB is doing a fantastic job in protecting consumers. On this front, however, we believe the CFPB got it wrong. In order to simply a process, the CFPB jammed together two laws that are not entirely compatible (TILA and RESPA) then increased disclosure requirements from a 4 page HUD-1 to, in some cases, 8 pages of CD.
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Shawn M. Yesner, Esq., is the founder of Yesner Law, P.L., a Tampa-based boutique real estate and consumer law firm that helps clients eliminate debt by providing options, so they can live the lifestyle of their dreams. We assist clients with the sale and purchase of real property, landlord/tenant issues, short sales, and loan modifications, asset protection, Chapter 7 liquidation, Chapter 13 reorganization, bankruptcy, foreclosure defense, debt settlement in Tampa, Westchase, Odessa, Oldsmar, Palm Harbor, Clearwater, Pinellas Park, Largo, St. Petersburg, and throughout the greater Tampa Bay area.