After the housing market crash and resulting financial crisis of 2008, the U.S. federal government decided to address shortcomings in the mortgage application process. In 2010, the U.S. Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act (known as the “Dodd-Frank Act”), which formally created the Consumer Financial Protection Bureau (CFPB), a federal agency charged with overseeing consumer protection in the financial sector, including mortgage lending.
The Dodd-Frank Act required the CFPB, within a year of its creation, to propose rules that could combine the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA) disclosures (which had been in use for three decades) into a single, integrated disclosure. The goal was to help consumers better understand the terms of their loan prior to closing.
Following two years of research, consumer testing, and public comment, the CFPB published the final, 1,888-page rule in 2012 and set an implementation date of August 1, 2015. Bowing to industry pressure to extend that deadline to give companies more time to prepare for compliance with the complex rule, that date was later changed to October 3, 2015.
Also known as the “Know Before You Owe” rule, TRID consolidated RESPA’s Good Faith Estimate (GFE) and TILA’s Truth in Lending (TIL) disclosure into one form, called the Loan Estimate (LE). The LE provides a summary of the key loan terms and estimated loan and closing costs. Lenders must provide the LE to customers within three days of receiving their loan application.
TRID also consolidated RESPA’s HUD-1 Settlement Statement with the final TIL disclosure into the Closing Disclosure (CD). The CD provides a detailed accounting of the mortgage loan transaction. Consumers must receive the CD three business days before closing a loan. Any significant changes to loan terms require the lender to issue a revised CD, triggering a new three-business-day review period.
TRID places ultimate responsibility for ensuring all settlement service providers comply with the statute squarely on the shoulders of mortgage lenders.