TRID and the CFPB

Most Chicagoland home buyers and sellers have some awareness of TRID and the CFPB.  TRID is the “TILA-RESPA Integrated Disclosure”.  TRID replaced the old Real Estate Settlement Procedures Act and Truth in Lending Act rules in most residential lending transactions.  The new TRID rules were implemented in October of 2015.  The CFPB refers to the Consumer Financial Protection Bureau that is responsible for implementation and enforcement of the TRID rules.

Why TRID?

TRID was sold to the public as a way to better inform consumers about their transaction.  I’m not sure I agree that this was actually the motive for the law and I don’t think the law has served that intended purpose.  Nonetheless, one of the major changes that came with the new TRID rules was the requirement that certain disclosures be timely made to buyers and sellers.  If the disclosures are not made, closings could be delayed.

Part of the goal of the increased disclosure requirements is to limit the amount that disclosed costs can change between the time of disclosure and the time of closing.  Depending on the nature of the cost, some of the costs disclosed could not change at all; some of the costs disclosed could only change within a certain tolerance limit; and some of the costs disclosed could change by an unlimited amount.

The TRID rules are very strict.  There are big penalties for TRID violations, so lenders have gone overboard out of their way to comply with the law.  Unfortunately, it is hard to comply with the law when it has mistakes within it.  Previously, the TRID rules indicated that property insurance premiums, property taxes, homeowner’s association dues, condominium fees, and cooperative fees are subject to tolerances. This meant that if the lender followed the rule, they would have had to re-disclose (and probably delay a closing) if those amounts changed or paid a fee to the borrower because of the tolerance violation.

What was the problem?

So, basically, the way the rule was written, there could not be changes to certain things like property tax credits, amounts that need to go into escrow, and association dues without having to re-disclose or pay a charge to the borrower.  When would this matter?  It could matter around property tax time.  Sometimes, when taxes are anticipated but are not yet issued, a lender may want a title company to guarantee that the taxes are paid.  The title company guarantees this by taking the money to pay the tax from the borrower and putting it into a title indemnity (or TI) account.  The amount of the TI escrow might not be determined until just before closing or might vary based on title company.  In addition, the amounts due to pay taxes and the credits that will be paid can change dramatically when a closing takes place and the tax bill unexpectedly comes out early (as it did in January of 2016).

The Solution

In the February 10, 2016 Federal Register, the CFPB has fixed the glitch.  The revised rule clarifies that “property insurance premiums, property taxes, homeowner’s association dues, condominium fees, and cooperative fees” are not subject to tolerances.

Is TRID a good thing?  I don’t think it is.  However, it is what we have to deal with right now and it is too bad the rule was wrong in the first place (I have already had at least one closing delayed because of this issue).  Thank goodness they fixed this mistake.  I’m guessing there will be more revisions in the future.