TRID Garners Mixed Reviews from Lenders, Borrowers
Last year the Consumer Financial Protection Bureau (CFPB) adopted a new loan disclosure process, replacing the previous Good Faith Estimate and HUD-1 regulations with the TILA-RESPA Integrated Disclosure rules or TRID for short.
If you’re not in the housing business, you probably didn’t notice. But a recent survey conducted by Fannie Mae’s Economic & Strategic Research Group (ESR) suggests that real estate pros, and lenders in particular, are definitely feeling the impact.
The new regulations essentially bring under one umbrella what were previously two separate regulatory disclosures, says Sheila Teimourian, Fannie Mae Vice President and Deputy General Counsel.
In the past, she notes, borrowers applying for a loan received a Good Faith Estimate under the Real Estate Settlement Procedures Act (RESPA), listing the basic terms of the loan, including the interest rate and certain other estimated costs of the loan. They also received disclosures under the Truth in Lending Act (TILA) including information such as the Annual Percentage Rate (APR). Then, at closing, they received another disclosure, this one on a HUD-1 Settlement Statement under RESPA, setting forth an itemization of the final charges and fees associated with the loan, and an updated set of TILA disclosures.
The Dodd-Frank Act brought these two regulatory practices together, says Teimourian, combining “the two disclosure schemes with the goal of providing the borrower a simpler and more holistic view of what it will cost to get that loan.”
Lenders Incur Costs
But while the disclosures are designed to be simple and transparent for borrowers, it has proven less so for lenders. While the information required is largely the same, small differences have required big adjustments.
For instance, Teimourian notes, certain costs, which formerly could be estimates, now must be exact on the initial disclosure at the time a buyer applies for a loan. Additionally, data fields have changed or moved, while in other cases certain calculations are now done differently.
It might not seem like much, but lenders have spent the last 30 to 40 years developing their systems for doing things the old way, points out Teimourian. Changing over to the new regulatory scheme has been “painful” for the industry, she says.
The program also receives mixed reviews from the people it’s designed to help — borrowers.
“Survey results indicated that lenders do not believe that consumers are paying attention to the new rules,” Teimourian says, although she cautions that this was merely a perception based on the limited survey responses.
“The idea behind it is that if consumers have all this information upfront at the loan estimate they can shop for a better loan,” she says. “But the truth is, they don’t usually shop at least until now.”
Instead, borrowers’ overwhelming concern was whether or not their lenders could close on time. “That seemed to be the ultimate test,” she says, “consumers didn’t want to be held up.”
Unfortunately for those consumers, lenders reported via the survey that the new regulations are adding nearly seven extra days to close a loan, although most said they expect this will shorten as they get more experience with the new rules.
Just growing pains, hopefully — but painful all the same.
Estimates, forecasts, and other views expressed in this article should not be construed as indicating Fannie Mae’s expected results, are based on a number of assumptions and may change without notice. How this information affects Fannie Mae will depend on many factors. Neither Fannie Mae nor its Economic & Strategic Research (ESR) Group guarantees that the information in this article is accurate, current, or suitable for any particular purpose. Changes in the assumptions or underlying information could produce materially different results. The ESR Group’s views expressed in this article speak only as of the date indicated and do not necessarily represent the views of Fannie Mae or its management.