In October 2015, the real estate industry had a new rule to deal with. The anticipation for the new Consumer Financial Protection Bureau’s (CFPB’S) TILA-RESPA Integrated Disclosures rule, or TRID, was weighty, and nobody knew what to expect. Would the CFPB delay implementation? (Yes, as it turned out.) Would the new rules cause closing delays? (Jury’s still out.)
Thank you Inman News’ Amy Swinderman for this explanation…
Where did TRID come from, why was it necessary, what is its purpose and how effective has it been? Read everything you ever wanted to know about TRID.
What is the TRID/Know Before You Owe rule?
The rule’s formal name as proposed by the CFPB is the TILA-RESPA Integrated Disclosure rule. Although the industries affected by the rule quickly adopted the acronym “TRID,” the CFPB has since stated that it prefers to call the rule the “Know Before You Owe mortgage initiative.”
Whatever you choose to call it, the rule is “designed to empower consumers with the information they need to make informed mortgage choices,” according to the CFPB. TRID replaces four borrower disclosure forms with two new ones, the Loan Estimate and the Closing Disclosure, and it requires creditors to give consumers three business days to review the Closing Disclosure and ask questions before the loan closes.
The CFPB hoped that by implementing TRID, consumers would be encouraged to comparison shop for mortgages, and the rule would make it easier for them to compare and contrast their loan options.
Wait, back up — what is the Consumer Financial Protection Bureau (CFPB)?
What does the CFPB do?
The Consumer Financial Protection Bureau is an independent U.S. government agency charged with overseeing consumer protection in the financial sector.
The CFPB has publicly said that it considers itself to be “a cop on the beat to patrol the consumer financial services markets.” The bureau acts as a watchdog over a wide range of other consumer financial products and services, including mortgage loans, credit cards, student loans, automobile loans, payday loans and debt collection.
It writes rules and regulations, enforces federal consumer financial protection laws, supervises financial services companies, fields consumer complaints, promotes financial education, researches consumer behavior and restricts unfair, deceptive or abusive acts or practices.
What is its origin story?
The agency traces its roots back to 2007, when then Harvard Law School professor Elizabeth Warren — now Massachusetts senator — first proposed it in response to the financial crisis of 2007-2008 and recession (and real estate market crash).
The CFPB’s creation was authorized by Congress’ passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010. The bureau formally opened the doors to its Washington, D.C., offices on July 21, 2011, with former Ohio Attorney General and Ohio State Treasurer Richard Cordray serving as director.
But if Elizabeth Warren proposed it, why isn’t she the director?
Although Warren proposed and established the CFPB, she was controversially removed for consideration from the director nomination when officials in President Barack Obama’s administration voiced concerns that she would not be able to “overcome strong Republican opposition” to the bureau’s intent and activities.
How does the CFPB relate to housing?
One of the CFPB’s biggest priorities is to make the mortgage marketplace safer and more accessible to Americans. The bureau inherited the regulatory authority over the mortgage and housing industries from the U.S. Department of Housing and Urban Development (HUD), including oversight of the Real Estate Settlement Procedures Act of 1974 (RESPA).
Any investigations initiated by HUD but not completed before it was absorbed by the CFPB were transferred to the bureau. Some of those investigations have been completed by the CFPB, and many are still ongoing.
How does the real estate industry feel about the CFPB?
Some real estate and mortgage industry professionals have criticized the CFPB for having inadequate and poorly trained staff.
Critics also ding the CFPB for “regulating by enforcement,” or making its positions on certain industry practices known by issuing consent orders, enforcement actions and entering into settlements with companies and individuals it deems to be in violation of the law to make an example of them, instead of issuing industry guidance and policy statements in the manner that HUD sometimes did.
How many people work at the CFPB, and what kind of budget does it have?
The CFPB has about 950 employees, and its 2017 budget is about $636.1 million.
Why and when did the CFPB issue the TRID rule?
What was TRID supposed to accomplish?
The clue is in the name: TRID stands for TILA-RESPA Integrated Disclosures. The rule was intended to consolidate and integrate two disclosure forms into one single, simpler disclosure:
- The Truth In Lending Act (TILA) disclosure
- The Real Estate Settlement Procedures Act of 1974 (RESPA) disclosure
Why did that need to happen?
After examining what went wrong with the financial crisis, recession and housing market crash, the federal government felt that the mortgage application process, which had been in place for more than 30 years — and which required lenders to provide consumers with TILA and RESPA disclosures at or shortly before a loan closing — was in need of an update.
After Congress concluded that those forms contained overlapping and inconsistent language and information, it wrote a provision in the Dodd-Frank Act requiring the CFPB, within a year after formally beginning operations, to propose rules that would combine the TILA and RESPA disclosures into a single, integrated disclosure.
How did the government decide how to combine the two disclosures?
The U.S. Department of Treasury hosted a mortgage disclosure symposium in 2010 that brought together consumer advocates, affected industries and others to discuss implementation of the combined disclosures.
Meanwhile, as the CFPB worked to become fully functional, it soon realized that one of the top consumer complaints it received was that the homebuying process was “overwhelming and confusing.” Consumers told the CFPB they often felt that closings are “rushed” and they weren’t given enough time to review and understand their closing documents before signing them.
With a pledge to consumers to “ease the process of taking out a mortgage, helping you save money and ensuring you know before you owe,” the CFPB first put pen to paper in February 2011 and began sketching prototype forms.
How were those prototypes tested/evaluated?
For about a year, the bureau tested the prototype forms on both consumers and industry, tweaking them in response to their feedback.
The CFPB also considered how its proposals would affect real estate agents, mortgage lenders, title/settlement/escrow agents and others, and was particularly concerned with how they may affect small businesses.