The TILA/RESPA integrated disclosures (TRID) rule
A new rule issued by the Consumer Financial Protection Bureau (CFPB) called the The TILA/RESPA integrated disclosures (TRID) rule takes effect on Oct 3, 2015.
How it affects the Home Buyer
- Changes to several standard Mortgage documents
- Changes to timing on several procedures in the mortgage process.
Creating 2 new disclosure forms to replace 4 existing disclosure forms. You may remember or have heard of forms such as Truth-In-Lending statement (TILA) or HUD-1 or “Good Faith Estimate (GFE)”. The new forms are intended to simplify and consolidate these into documents that will make it easier for consumers to understand what their obligations will be before they close on a mortgage (other loans too) to purchase a home.
The new forms are:
The Loan Estimate — replaces the Good Faith Estimate and the initial Truth-in-Lending statement (TILA). Making it easier to understand and allowing easier comparison of competing lenders.
The Closing Disclosure — replaces the HUD-1 and the final TILA. Combining the form into an easier to understand format.
Loan “APPLICATION” defined
The term “application” has now be defined under the TRID rule to 6 specific items that must be received from the prospective borrow. This is important because the lender must now provide a Loan Estimate with in 3 days of receiving the following 6 pieces of information:
- the potential borrow’s name or names (couple)
- the potential borrows’s income
- the potential borrow’s social security number to obtain a credit report
- the property address (property to purchase)
- an estimate of the value of the property
- the mortgage loan amount sought
One benefit of the Loan Estimate is that it will help you shop for a lender by comparing various “Loan Estimates” from several lenders. The Loan Estimate is a standardized form which will be consistent from lender to lender. This form now includes an estimated monthly payment. The second and most important purpose of the “Loan Estimate” is to make sure you fully understand all of the costs of the loan that you will be responsible for is you proceed to closing.
I always suggest that my clients start looking for a lender prior to finding the home they want to purchase. This means that 4 of the above 6 pieces of information can be provided to the lender in advance. Generally this means that the buyer will fill out a loan application. The 2 remaining pieces of information are the property address and the estimate of the value of the property. When the property information is provided the lender can move forward quickly to provide the consumer with the Loan Estimate.
Another requirement is the the borrower must let the lender know that the intend to proceed with the loan as described by the Loan Estimate that they received. The Loan Estimate expires 10 days after delivery. It can be a phone called but it must be made clear that you intend to go with that lender and that loan.
The lender will require other information from you but these 6 are all that is required to generate a Loan Estimate. Other information will include tax returns, bank statements, and pay stubs, etc. The Loan Estimate is not a guarantee that you are qualified, this is why they will ask for the other information.
Closing Date closely tied to New Required Deadlines
The TRID rule states that Closing Disclosure must be delivered to the borrower 3 days prior to consummation (closing) and settlement. In other words the closing date is now dependent on when the lender delivers the Closing Disclosure AND and the Borrowers acknowledgement of receipt. The 3 day clock doesn’t start ticking until acknowledgment of receipt of the Closing Disclosure. The Lender should allow 3 days for delivery and 3 days to review so it is really a 6 day window. This is a little confusing and can be better explained in person. I am happy to answer any questions. In my view this deadline is a good thing for borrowers and sellers need to be willing to be more flexible on the closing date. In most cases this will not be a problem as lenders are already putting steps in place to ensure that loan processing is moving according to the new timeline requirements.
Resources
The CFPB has prepared a document called “Home Loan Toolkit” this is a great resource for borrowers to better understand the loan process and also how to compare lenders and types of loans. Here is the link http://files.consumerfinance.gov/f/201503_cfpb_your-home-loan-toolkit-web.pdf