Back to the Basics: The History of TRID and How It Affects Construction Lending
Every lender must follow the same regulations. In recent years, those regulations have been presented via TRID, which has made it difficult and nearly impossible for some lenders to originate construction loans. At ECL Software we have created unique software solutions that make compliance easier than it’s ever been. Today we are going to cover the basics of TRID and how it affects construction lending.
What exactly is TRID?
TRID stands for TILA RESPA Integrated Disclosure Rule. Borrowers may refer to it as the “know before you owe” rule. Essentially, TRID requires lenders to offer new disclosures that are designed to help borrowers fully understand their options in home financing before they sign off on anything.
Breaking down TILA and RESPA
To go a little deeper, let us consider what TILA and RESPA are and what they were designed for. TILA, which stands for the Truth in Lending Act, was enacted more than 50 years ago and includes requirements for lender disclosures regarding loan terms and costs. The purpose was to standardize how lending costs are calculated and disclosed.
A few years later, RESPA was enacted. It stands for the Real Estate Settlement Procedures Act which was created to protect homeowners. It helps to educate borrowers who are shopping around for real estate services. RESPA also put an end to referral fees, kickbacks, and other issues that caused unnecessary added costs.
The effect of the Great Recession on TRID
Right before the financial crisis of 2008, housing prices were higher than they had been in decades. As the mortgage lending crisis hit, construction lending stopped almost entirely. An upswing slowly began in 2009 but total recoup has not been seen.
In 2015, what is now known as the BCFP but was then known as the CFPB brought together the TILA and RESPA requirements described above to form TRID. This new rule integrates disclosures and streamlines the way loans are processed and settled.
TRID and construction loans
Lenders had enough trouble implementing the combined disclosures required in TRID that traditional lenders focused more on their bread and butter residential loans and pulled back on construction funding. Those lenders who did want to be involved in construction loans struggled to figure out how they could implement TRID correctly with the right loan estimate and closing disclosure.
We can help with compliance and so much more
The good news is that these compliance rules have bene in place for years now and many companies have it figured out. ECL Software is one of those companies. Whether you choose JDIO or our fund control software, you will appreciate the built-in compliance measures. As a company that specializes specifically in construction loans, you can count on us staying up to date with changes that are made.