A Brief History of TRID and What it Means for Construction Lending
All lenders have to follow the same regulations. Lately, these regulations have come in the form of TRID. TRID has made it difficult for many lenders to originate construction loans. It’s our intention at Land Gorilla to help inform the mortgage industry with a brief history of TRID, what it is, where it came from, what TRID stands for, and what it means for construction lending.
What TRID means in the mortgage industry is an important question to answer. The best way is to dig a little deeper into the TRID story. To do this, we need to review the events that instigated this reform.
What is TRID?
TRID is the TILA RESPA Integrated Disclosure rule and commonly referred to by borrowers as the Know Before You Owe rule. The TRID rule forces mortgage lenders to provide new disclosures to aid borrowers in understanding their home financing options before they sign.
What is TILA
TILA is the Truth in Lending Act, which the BCFP has rulemaking authority over. TILA, enacted in 1968, requires disclosures about loan terms and costs to standardize how costs associated with borrowing are calculated and disclosed.
What is RESPA
RESPA is the Real Estate Settlement Procedures Act enacted in 1974. This act protects homeowners by assisting them to become better educated while shopping for real estate services. RESPA also eliminated kickbacks and referral fees which added unnecessary costs to settlement services.
TRID and the 2007 Great Recession
Let’s start right before the financial crisis of 2007/2008. Housing starts were higher than they had been in over 20 years. Once the crisis hit, construction lending came to a halt. In 2009, housing starts stopped falling and held steady, but still haven’t recouped the momentum lost because of the recession.
TRID and the 2010 Dodd-Frank Wall Street Reform Leads to Consumer Protection Act
In response to the crisis, 2010 ushered in the Dodd-Frank Wall Street Reform and Consumer Protection Act, which in turn created the Consumer Financial Protection Bureau (CFPB). Now called the Bureau of Consumer Financial Protection (BCFP), this consolidated the federal consumer financial protection authority into one place. Once passed, significant changes were made to financial regulation in the US.
CFPB Regulations and Integrated Disclosures
In 2015, the CFPB (now the BCFP) brought together these two disclosures (TILA and RESPA) to form the TILA-RESPA Integrated Disclosure rule (TRID). This new TRID rule requires consumers receive integrated disclosure forms during the application and settlement processes of a loan. These elements are known as the loan estimate and the closing disclosure.
In the run-up to the TRID implementation due date, lenders and technology service providers felt like it was a race to the finish because of all the actions required to be compliant. Some struggled through the implementation more than others.
The CFPB provides updated TRID guidelines and new TRID rules for both borrowers and lenders.
TRID Construction Loans
Unsurprisingly, consumer construction loans remained almost non-existent. Lenders were focused mostly on how TRID rules affected their other loan programs. Those that were interested in construction lending had to struggle to figure out how to implement the new TILA RESPA Integrated Disclosure rule with the focus on the loan estimate (LE) and the closing disclosure (CD). Origination adds an additional element of complexity for construction loans when it comes to TRID. The way these new regulations affect mortgage loans is still murky without ever considering how the actual construction aspect of a construction loan is impacted, regulated, or how a lender can stay compliant.
TRID 2016 and TRID Webinar
In 2016, the then CFPB released support for TRID construction loans including hosting a webinar with the Federal Reserve focused on the implications of TRID for construction lending. Despite this support, guidance was still very limited.
However, the ever-increasing regulations meant those that wanted to enter the space were prevented because of fear that they didn’t fully know or understand the implications of these changes, and how to protect themselves from unknown risk. The LE and CD were the primary issues during this time, and loan origination systems hadn’t caught up to a solution.
TRID 2017 Gets Industry Support
2017 was a big year for the mortgage industry, as Ellie Mae announced support for construction loans via their flagship LOS, Encompass, on February 15, 2017. At the same time they announced an integration with Land Gorilla that offered even more support for construction lenders with post-close draw management capabilities.
Other LOS providers followed suit in supporting construction loan products.
Flash forward to today. The Bureau of Consumer Financial Protection published their Federal Register amendments to TRID guidelines that went into place on October 1, 2018. Otherwise known as TRID 2.0, the BCFP has provided even further guidelines on the issues lenders face while maintaining TRID compliance. This update adds and clarifies technical amendments.
So now what? Who is offering support for these TRID regulations? And how can you begin construction lending again?
This free webinar has the answers. It busts through the myths of TRID and construction lending and offers resources to help you create the best possible construction loan program.