Regulations bringing changes in hard money lending

TRID, The new integrated disclosure, rule favors consumers while creating more work for lenders. The immediate effect may seem prohibitive to hard money lenders, however, it will benefit then in the long-term.

During preparation of new disclosure documents, lenders who make more than five loans annually must provide details of construction and bridge loans. In determining whether a loan is subject to TRID, they must examine the facts of the deal. Generally, the rule will emphasize on mortgage loans the client uses for personal or household purposes. TRID regulations will create more transparency in real estate deals, giving investors and lenders more work.

Pre-TRID, hard money lenders worked simply with a deed of trust and a note. Other requirements put the burden of proof on the borrower. Under TRID, lenders must build trust by allowing clients to see their calculations.

Introduction of Documents

The new regulations require lenders to provide clients with two new forms; the closing disclosure and the loan estimate. The forms must reach the client within a certain timeframe, after which the loan can only be finalized once the client is happy with the lender’s decisions and process.

The loan estimate must use simple language to elaborate on the Good faith Estimate; explain the TILA-disclosure, list loan features, risks and any related costs.

The closure disclosure form, presented towards the end of the process summarizes the loan settlement and the TILA statements in a simple language, with detailed calculations showing the entire accounting process including projections. The lender or a settlement agent can prepare the form.

The TRID manual also includes formatting and wording instructions for the documents.

Revised Deadlines

Under TRID, lenders must provide borrowers with the loan estimate form within three days after receiving the borrower's details in form of loan application. Borrowers must also have the Closing Disclosure documents three days prior to receiving the loan. Any changes to the loan terms will mean that the three-day period starts again.

Post-TRID, lenders should spend a minimum of 14-days before legally closing. This period can extend depending on the lender or borrower. During this period, and before closing, the only fee borrowers can pay are the charges for obtaining a credit report.

Preparation Guidelines for Lenders

Lenders working in the hard money sector must revise their policies, and re-examine the systems they use to keep up with disclosures. TRID will also affect pre-application estimates, reporting requirements and compliance tests.

Hard money lenders must also work more to prepare clients, which means that loan processing will take longer. They may need to hire personnel to meet the regulations. Lenders must also consider the new timelines when preparing contracts to ensure smooth closing, with room for last-minute changes. They must further ask clients to review all documents carefully and explain to them that the process may take longer.

Long-term Benefits

Experts in the money lending industry believe TRID will increase loan-processing fees by billions. They argue that it will slow down closing, frustrate clients and send the industry into disarray.

There is some truth in it, money lenders may have to adapt to new timelines and slower closings. However, the bigger picture paints a different reality. Lenders may eventually benefit as much as borrowers. The new regulations will improve borrower-lender relationships, creating opportunities for more business.

Sadly, very few people outside the industry understand hard money lending, including borrowers. TRID will simplify the lending process and reduce confusing paperwork for clients.