TRID: A Step Into the Unknown

Amid all the consternation about the looming TILA-RESPA Integrated Disclosure (TRID) Rule effective date of October 3, one analyst believes that the biggest unknown about TRID is just that—unknown.

Until October 3, buyers will use the HUD-1 Settlement Statement containing a good faith estimate for closing the loan that has been in use for 40 years; starting Saturday, they will get the loan estimate, and then three days before closing, they will use the new Closing Disclosure Form. The fact that there is no transition period between using the HUD-1 and the new Closing Disclosure Form might be problematic, according to Bankrate.com senior mortgage analyst Holden Lewis.

"There's not a thing where lenders have an option where they can say, 'We're having trouble with our loan estimate generation software, so we'll give you a good faith estimate instead,'" Lewis said. "They can't do that. If there are issues on Saturday or the following week, they can't fall back on the old disclosures. What will those issues be? I think the lenders basically think they have everything ironed out, but they can't be positive that something won't just pop up that they had not anticipated."

Lewis compared the new TRID rollout to the introduction of a new software program that is found to contain bugs—"You don't find out about them until it's too late."

The three-day waiting period gives lenders a real incentive not to make last minute changes such as the interest rate, the type of loan (fixed or ARM), or adding a pre-payment penalty, Lewis said, because the last-minute changes will require the lender to issue another Closing Disclosure and the three-day period begins anew.

"I think the lenders basically think they have everything ironed out, but they can't be positive that something won't just pop up that they had not anticipated."

Lewis recommends that buyers obtain a good rate lock when in the process of getting a mortgage. In the first few weeks or maybe even the first couple of months after the TRID Rule goes into effect, lenders are going to want to err on the side of caution as far as the rate lock.

"I really don't think there are going to be a lot of snags delaying a whole lot of loans, but there are a lot of unknowns here, too," Lewis said. "The lenders are just going to want to be really cautious and make sure that they're going to be able to close these loans. In that case, if you're a borrower, you should ask, 'Should I lock a little bit longer that people normally lock?' And some lenders are probably going to say, 'Yes, just to be on the safe side, let's have a 45-day lock instead of the usual 30.'"

Even with the two-month delay from the original TRID effective date of August 1, mortgage industry stakeholders are scrambling to become fully compliant with the TRID rule. Earlier this week when testifying before Congress, CFPB Director Richard Cordray said the Bureau would take a "corrective" approach rather than a punitive one for a period of months for those making a good faith effort to comply with TRID.

Click here for more on the CFPB's TRID Rule.