Raz writes that “the new integrated-disclosure rule known as TRID is excellent for consumers but also laborious for lenders. It will consequently have some short-term negative impact on lenders, including some hard money lenders — although in the longer term, it promises to offer benefits as well.
The determination of whether a hard money loan is subject to TRID — also known as the Truth in Lending Act (TILA) and Real Estate Settlement Procedures Act Integrated Disclosure rule — will depend on the facts of the deal, but generally the new rules will apply to any mortgage loan in which the proceeds are used by the borrower primarily for personal, family or household purposes.”
Now, of course, we, the non-traditional lenders, must abide by the same rules as the banks when it comes to the “consumer purpose” loans. This means following the TRID rules and timing elements.
As part of the new guidelines, a lender making a residential real estate loan must submit to the client two very important new forms. They are the Loan Estimate and the Closing Disclosure. The client must receive these forms within a certain timeframe, and the loan can only close once the client reviews, understands and is satisfied with the lender’s numbers and decisions in both the LE and the CD.
New timelines for TRID require that borrowers be provided with the Loan Estimate form at least three business days after applying for a loan — which means at least three business days after borrowers provide the lender with details such as their name, income, Social Security number, property address and the mortgage amount sought.
Borrowers must also receive the Closing Disclosure at least three business days before loan consummation. Any significant changes to the loan terms, such as an interest-rate increase of more than 0.125 percent for fixed-rate loans or 0.25 percent for adjustable-rate loans, a prepayment penalty, or changes in the loan product, will cause the three-day interim period to start again, and require a redisclosure reflecting any changes.
In short, lenders should prepare their borrowers for at least a 14-day wait before a mortgage can legally go to closing — and sometimes longer if either the borrower or the lender finds it necessary to delay the closing. Finally, until borrowers have received and reviewed both TRID forms and agreed to proceed, the only fee lenders can impose is a reasonable charge for obtaining a consumer’s credit report.
Mr. Raz goes on to say in his article that “It is true that mortgage originators, including some hard money lenders, may have to cope with longer timelines and delayed closing dates because of TRID. In the long run, however, the reality may not be so bad. TRID also could wind up benefiting loan originators, including hard money lenders, as much as it benefits the borrower.
Unfortunately, hard money lending is not well understood outside the industry, including by many borrowers on the residential side, and that can make it intimidating. The new loan-documentation requirements, however, could lead to stronger customer-lender relationships.”
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