What is TRID?
The TILA-RESPA Integrated Disclosures, also known as the “Know before You Owe” regulations were created by the Consumer Financial Protection Bureau in October 2015 and stipulate that any commercial private lender (or private money lender for that matter) who transacts five or more loans a year will need to include all details of their commercial and residential transactions in their forms. Accounts have to be as transparent and thorough as possible. Private lenders may agree with them. Most clients certainly do. Not all lenders and clients welcome the changes since they draw out and complicate an originally convenient and fast process.
At one time, most private lenders simply required minor documentation such as a Promissory Note otherwise known as Deed of Trust. Other forms varied but usually included some form of promise from the borrower (part of the covenant in the promissory note); proof of financial statements such as tax returns and proof of income (though rarely as intense as that required by traditional lending institutions); and assurance that the property was valuable. Borrowers sought a reliable lender, but, once found, the proof of evidence lay largely on the borrower. He or she had to convince the lender to invest in his property.
TRID stipulates that private lenders who loan beyond a certain amount and deal with commercial real estate outline their calculations to the client. As prelude to closing, they have to mail the client two new forms: the Loan Estimate and the Closing Disclosure (a statement of final loan terms and closing costs). The client has to receive these forms within a certain time, and lender and client can only sign off on the loan once the client understands and accepts the terms. These include projected monthly payments, fees, balloon payment, interest rates, and other costs. The lender also details his estimated loan-to-value ratio, reasons for the appraisal, and an outline of the repayment schedule.
TRID insists that the client get the Loan Estimate at least three business days after applying for a loan. The client must also receive the Closing Disclosure three days before signing off on the documents and receiving the funds.. This gives him time to ask questions and reconsider his decision.
TRID also insists that the only fee the lender can impose on his client is a reasonable sum for obtaining a consumer’s credit report, until the client has reviewed both forms and agreed to proceed.
Some commercial private lenders welcomed the forms. They realized that this new loan documentation could lead to a stronger relationship and reinforced trust with their clients. Lenders and clients strike a relationship that is far more transparent than ever and this new environment of trust could produce repeat business and fewer costly litigation.
Predictably, most clients liked the regulations. After all, it gives them time to reflect, to share the reasons behind the calculations, and it forces lenders to be more open with them. It also gives borrowers an opening to negotiate flexible terms and reduced rates.
Understandably, a recent article in the Fiscal Times reports that a huge population of lenders are less than happy with the changes.
Lenders have to hire assistance to help them complete and file forms (unless they want to do this tedious and time-consuming work themselves).
These new regulations also reduce the few attractions of the hard money industry. Borrowers were attracted to hard money loans precisely because they were so fast and convenient. These new regulations slow up the procedures and may even cause lenders to retract the loans or reiterate procedures until the client is satisfied. Examples would be the client wanting an APR increase of more than 1/8 of a percent for fixed-rate loans, or 1/4 of a percent for adjustable loans; a prepayment penalty, or changes in the loan product. Any of these may cause the three-day interim period to start again.
Hard money loans used to take as short as three days before the client received the loan. Sometimes, the client received the funds the same day. With TRID, experts advise a minimum 14-day wait before the loan can legally go to closing. In short, TRID brings longer timelines and delayed closing dates because of the initial amount of work and the first few weeks’ steeper learning curve needed to master them.
Worst of all, realtors blame TRID for the smaller-than-expected gain in new home sales and the largest drop in existing home sales over the last five years. Reports show that closing times have extended by a few days.
Commercial private lenders (such as one community banker who spoke to The Wall Street Journal and Housing Wire in November 2015) also complain about vendors and software systems not aligning with one another, and discrepancies over the meaning of some of the requirements. And they complain about the inherent frustrations that go into making sure that the terms are spelled just right.
The Fiscal Times (December 2015) blames lenders for deliberately chipping away at confidence in consumer protections. It reads nefarious intentions into these complaints. The author of the article stated that lenders want to show how regulations hurt, not how they help in order to rip of more clients. But TRID takes some getting used to.
Lenders are doing their best. Not all are the scurrilous scavengers that the Fiscal Times depicts them to be.