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08/05/2014

Loans Not Covered by TRID

Implementation of the Consumer Financial Protection Bureau’s integrated mortgage disclosures is Aug. 1, 2015. Note that there is no stagger in the roll out. All mortgage applications prior to Aug. 1, 2015 will use the current Good Faith Estimate, HUD-1 and Truth-in-Lending disclosures. All applications received on or after Aug. 1, 2015 will use the new Loan Estimate and Closing Disclosure.

The integrated mortgage disclosures apply to most consumer mortgages except:

  • Home-equity lines of credit
  • Reverse mortgages
  • Mortgages secured by a mobile home or dwelling not attached to land
  • No-interest second mortgage made for down payment assistance, energy efficiency or foreclosure avoidance
  • Loans made by a creditor who makes five or fewer mortgages in a year

Federal law does not require the use of the HUD-1 or the new Closing Disclosure in all-cash transactions. While some states have laws requiring the use of a state promulgated form in cash transactions, in general the HUD-1, the Closing Disclosure or any other settlement statement can be used in cash transactions.

In addition, federally related mortgage loans generally exclude temporary financing and construction loans.

Comments

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Are co-ops included under TRID? While they are closed end loans they can be secured by stock vs real property.

I have heard two opinions on this and wish to clarify.

Is it still correct that non-residential mortgages are not covered by TRID?

Hello Noreen, thanks for the question. The TRID rule covers closed end loans secured by real estate. While co-op transactions are different than traditional home sales, depending on state law they may be considered real property transactions. Some factors to consider are specific state laws, whether the sale is a stock certificate only sale or whether long term lease is also granted and whether the security instrument is entitled to recording in the land records vs UCC system.

Ken, thank you for asking if TRID applies to non-residential mortgages. The TRID rule applies to most closed-end consumer mortgages (the few exceptions include home-equity lines of credit, reverse mortgages, mortgages secured by a mobile home or dwelling not attached to land, and no-interest second mortgage made for down payment assistance, energy efficiency, or foreclosure avoidance). The CFPB is focused on protecting the consumer, which is why the rule does not apply to non-residential mortgages.

Specifically, you can look to the purpose section in the Truth-in-Lending Act:
“The purpose of this part is to promote the informed use of consumer credit by requiring disclosures about its terms and cost, to ensure that consumers are provided with greater and more timely information on the nature and costs of the residential real estate settlement process, and to effect certain changes in the settlement process for residential real estate that will result in more effective advance disclosure to home buyers and sellers of settlement costs."

Does TRID apply to financing vacant land to be built on at a future date?

According to an Attorney at the FDIC, the following loan would be included in the TRID rules:

A closed end loan to a consumer - with the proceeds going to pay for the daughters wedding - secured by a commercial building (real estate).

Thoughts?

Hello Karen,

The advice from the FDIC sounds reasonable.

TRID applies to “closed-end consumer credit transaction secured by real property, other than a reverse mortgage subject to § 1026.33.” See 1026.19(e)(1). A transaction is considered consumer credit when the, “credit offered or extended to a consumer primarily for personal, family, or household purposes.” 1026.2(a)(12). Whether or not TRID applies does not hinge on the type of real property securing the loan but rather on the purpose of the loan and the fact that it is secured by real property. While there is no exhaustive list of consumer purposes, it is not unreasonable to consider covering the cost of a wedding as a personal or family purpose under TILA.

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