What Is The History Of TRID?
Though TRID guidelines are relatively new, a few basic legal requirements have governed lenders for over 4 decades. TRID is a condensed version of two regulations, the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA).
Let’s take a look at how these two federal regulations work.
The Truth In Lending Act (TILA)
In 1968, the federal government introduced TILA regulations to discourage dishonest credit lending practices. TILA and its associated regulations, known as Truth in Lending disclosures, protect consumers from unfair credit and credit card billing practices.
TILA requires lenders to provide written information about interest rates and loan payments upfront before you sign a loan agreement. The act also offers borrowers the right to rescind or back out of certain mortgages within 3 days of receiving their Closing Disclosure without losing money. TILA doesn’t guide lenders on how much they can charge in interest, but it ensures borrowers know where to find the interest rate a lender offers to easily compare mortgage loan offers.
The Real Estate Settlement Procedures Act (RESPA)
RESPA regulates settlement costs (also known as closing costs) and protects home buyers from unfair real estate practices. Before you borrow money, mortgage lenders must provide information on settlement services, consumer protection laws and real estate transactions. This way, you can more accurately estimate your fees and expenses.
RESPA also eliminates the practice of “kickbacks,” or referral commissions, that can inflate the cost of a loan at the last minute. RESPA also regulates the use of escrow accounts, where money is held by a neutral third party and released once specific conditions are met. RESPA prohibits lenders from demanding large amounts from escrow before a loan is approved.
