Most consumers have never heard the acronym TRID. It stands for Truth in lending Respa Integrated Disclosure. If you asked me, they got the name wrong. It should be TIRD because that’s what it is, a big turd. It’s government over reach at its worst and this from a life long Democrat.
TRID kicked into effect on October 3, 2015. It was originally supposed to launch in August, but no one was ready for it. We still aren’t ready for it. So what is it and what’s it for? The idea behind TRID is to force lenders into full disclosure of costs, rates and fees up front and then force them to compare the original estimate to the actual at the end of the process. It sounds like a good idea right? I get a quote on costs from the mortgage person and then I get to cross compare before close. Keeps them honest. If the numbers are different and the difference exceeds a narrow threshold, the lender gets fined. It protects the borrower from getting the old bait and switch or stuck with some outrageous charges at the very end when it’s too late to do anything. Perhaps some charges that were never disclosed. Sounds like a great program to protect the borrower from unscrupulous loan agents. So where’s the problem you ask?
To begin with, TRID requires a new 3 day review of disclosures up front that we didn’t used to have. It used to be, apply for a loan and order the appraisal. Now you have to wait 3 days to order the appraisal. The next most obvious problem is since the banks are responsible for the penalties should a discrepancy take place, they are freaking out. They’re concerned that escrow will make a mistake that the banks will be held responsible for and get fined (Up to $1M per offense!) so they’ve taken an active role in the estimated final HUD 1 (Estimated Closing Statement). This means there’s a new layer at the end of the process. Moreover the TRID rules state that the final HUD 1 or “closing disclosure” has to be in the borrower’s hands a minimum of 3 days before the loan documents can be drawn up and can be up to 5. Now imagine, for most borrowers it takes 3 weeks to get a typical loan approval, then add the 3 days up front and another up to 5 on the back side and you end up with a whole lot of time and delay. Forget a 30 day escrow, that’s nearly impossible under TRID.
OK, so no more 30 day closes, what’s the big deal? Well sellers don’t like it, they want their money and to be moving on. Buyers don’t like it for very much the same reason, they want the house and to be moving in. And how about that it costs the borrower more? That’s right it costs the borrower in several ways. First and foremost a bank offers its most compelling rates with a short term lock; it used to be 12 days got you the best rate. But 12 days doesn’t work under TRID as we’ve already discussed because the disclosure up front has to match the one at the end. This means the consumer no longer has the option of “floating,” which is in fact a type of gambling; gambling that the rates will drop as they near closing. Can’t do that under TRID. Moreover the consumer can no longer shop around because the process takes so long now, the borrower has to commit to the lender right away or they the borrower will require even more time to close.
So who wins in this scenario? The big banks. Why? The big banks win because the threat of the fine will drive the smaller ones out of business or force them to sell to the big banks. The banks in general win because the banks no longer have to offer the lowest rate for a short term lock because the borrower can’t float. All rates are locked at 45 days, the most expensive rate, because it’s so far from closing. Banks also no longer have to compete like they used to. Before, a borrower could always jump ship to a different lender if the rates dropped but this is not possible now because the process under TRID takes so long that a borrower could never start over and reset the whole timeline to close. No seller is going to agree to an extension so the borrower can change lenders midway through the process. Especially not with the 3 days up front and 5 days at the end.
The net outcome of TRID is the process is more convoluted, difficult, slow, more expensive to the borrower and restricts free trade. Other than that, it’s great.