The new integrated-disclosure rule known as TRID is excellent for consumers but also la- borious for lenders. It will consequently have some short-term negative impact on lenders,
including some hard money lenders — although in the
longer term, it promises to o;er bene;ts as well.
Any hard money lender who makes ;ve or more loans
a year may need to include details of construction-only and bridge loans in the new disclosure documents. The determination of whether a hard money
loan is subject to TRID — also known as the Truth in
Lending Act (TILA) and Real Estate Settlement Procedures Act Integrated Disclosure rule — will depend on
the facts of the deal, but generally the new rules will
apply to any mortgage loan in which the proceeds are
used by the borrower primarily for personal, family or
What the new TRID regulations mean is that a;ected
real estate deals will be a great deal more transparent
for the client, and somewhat more work for the investor or lender.
In a pre-TRID world, hard money lenders simply
required a note and a deed of trust. Other documentation requirements varied but generally included a
personal guarantee from the borrower, personal ;nancial statements — such as past tax returns and proof
of income — and assurance that the borrower had
the funds to rejuvenate and maintain the property.
The burden of proof rested largely on the borrower.
Under TRID, which took e;ect this past October,
lenders have to engender trust by showing their calculations to clients.
As part of the new guidelines, a lender making a residential real estate loan must submit to the client two
new forms. They are the Loan Estimate and the Closing
Disclosure — which is a statement of ;nal loan terms
and closing costs. The client has to receive these forms
within a certain timeframe, and the loan can only be
;nalized once the client understands and is satis;ed
with the lender’s numbers and decisions.
The upfront Loan Estimate form uses simple language to summarize the Good Faith Estimate and
TILA-disclosure requirements for the client and
explains the loan’s key features, costs and risks.
The Closing Disclosure form, provided near the end
of the mortgage process, summarizes the ;nal TILA
and loan-settlement statements. Again, this form uses
language that is easy to understand and provides the
borrower with a detailed accounting of the entire
transaction — including projected monthly payments,
fees and other costs.
The lender is responsible for preparing the Closing
Disclosure form — although a quali;ed settlement
agent may handle that task in some cases. The form
also contains additional new disclosures required by
the Dodd-Frank Wall Street Reform and Consumer
Protection Act as well as a detailed accounting of the
The 2,000-page TRID-instruction manual also outlines other regulatory requirements and includes instructions informing the lender how to format and
word the Loan Estimate and Closing Disclosure documents.
TRID requires that borrowers be provided with the
Loan Estimate form at least three business days after applying for a loan — which means at least three
business days after borrowers provide the lender with
details such as their name, income, Social Security
number, property address and the mortgage amount
Borrowers must receive the Closing Disclosure at
least three business days before loan consummation.
Any signi;cant changes to the loan terms — such as
an interest-rate increase of more than 0.125 percent
for ;xed-rate loans or 0.25 percent for adjustable-rate
loans; a prepayment penalty; or changes in the loan
product — will cause the three-day interim period to
In short, lenders should prepare their borrowers for
at least a 14-day wait before a mortgage can legally
go to closing — and sometimes longer if either the
borrower or the lender ;nds it necessary to delay the
closing. Finally, until borrowers have received and reviewed both TRID forms and agreed to proceed, the
only fee lenders can impose is a reasonable charge for
obtaining a consumer’s credit report.
Hard money lenders making loans that may be a;ected by TRID should review policies and procedures, in
addition to changing the way they track and modify
Regulations Bring Change
to Hard Money Deals
Although the new standards may be arduous,
lenders still should thrive in the post-TRID world
By Yanni Raz
Yanni Raz is CEO of HML Investments and has been a
hard money lender for more than 10 years. Raz was a real
estate broker for five years before he partnered with a
group of investors from California and began assisting
real estate investors in financing commercial and residential projects. He writes about real estate financing for
magazines, blogs and other online news outlets. Reach
Raz at firstname.lastname@example.org or (818) 308-4443.
Visit lioncrestfunding.com, hmlinvestments.com and
For more articles on TRIDs
View these articles and more at
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