Most participants in the mortgage lending business will agree that the industry has been bogged down by increased regulation since the financial crisis. Within the last year, momentum seemed to shift when Fannie Mae and Freddie Mac expanded mortgage credit by offering a 3 percent down payment option, and the FHA lowered its mortgage insurance premium by half a percent.
Later this year, the scale will tip once again with a new regulation going into effect. One of Dodd-Frank’s directives was for the Consumer Financial Protection Bureau (CFPB) to combine and simplify home mortgage forms to make them more consumer friendly, transparent and eliminate inconsistency. The result of those efforts is TRID, one of the largest mortgage lending regulatory changes in history that will bring a number of big changes to the mortgage closing process.
TRID, which stands for TILA-RESPA Integrated Disclosure, was scheduled to come into effect Aug. 1, 2015. This changed, however, when the CFPB recently discovered an administrative error that would delay the effective date by two weeks. The CFPB decided to add in six weeks of an additional buffer and has now proposed to push the start date back to Oct. 1, 2015. This extension will surely be welcomed by the mortgage industry as they prepare to integrate the following changes.
The biggest change that TRID enacts is the consolidation of four existing disclosures:
- The Good Faith Estimate (GFE) and initial Truth in Lending (TIL) disclosure forms will be combined into a single Loan Estimate form.
- The HUD-1 Settlement Statement and the final TIL disclosure will be replaced by the Closing Disclosure form.
The consolidation of these forms will streamline the application process and do away with overlapping language and information. The new forms make it easier for borrowers to find the most important information – interest rate, monthly payments and costs to close the loan. The forms also provide more information on loan affordability.
Another big change resulting from TRID will be seen in the applications process. “TRID 6” represents the six components that, when provided by a consumer, start the three-day regulatory compliance clock. Once an application has been submitted, the lender is subject to all of the subsequent regulatory guidelines. Receipt of the following six pieces of information will represent an application and trigger the release of a loan estimate, which must be delivered within three business days:
- The consumer’s name
- The consumer’s income
- The consumer’s Social Security number (to obtain a credit report)
- The property address
- An estimate of the value of the property
- The mortgage loan amount sought
Mortgage professionals everywhere know this is coming and will need to prepare for these changes in advance to make sure they remain compliant. This means realtors need to be working with lenders and closing agents who are prepared to handle the new delivery and timeline requirements.
At Angel Oak Home Loans, we’ve started to revise our processes in preparation for TRID’s changes. We have carefully reviewed and considered our current application policies and procedures and have made modifications to ensure regulatory compliance and fair lending practices. Our modifications have enabled us to issue pre-HUD guidance eight to 10 days prior to closing for eligible loans, which makes final preparation of the forms much faster. We’ve also made technological and personnel changes to account for TRID, including software upgrades and training of licensed mortgage advisors.
Not All Regulation Is Bad
Ultimately, the impetus behind the new TRID regulations is consumer protection. The end goal of TRID is making sure the consumer more completely understands the mortgage process by updating documents that are years out of date and installing a waiting period so they have time to review those documents. While this might create some heartburn for lenders in the short term, we see this as an overall positive for the industry.
Whitney L. Fite is president of Angel Oak Home Loans LLC and has over two decades of real estate loan origination experience. Prior to Angel Oak Home Loans, Whitney served as Vice President, Area Production Manager at Regions Mortgage, and served in branch leadership positions at Opteum Mortgage and Homebanc Mortgage, where he consistently ranked among the top five loan originators in Georgia.