If you are planning to buy a new home and get a mortgage to finance the purchase, you should be aware of the new mortgage disclosure rules (called TRID) that went into effect on October 3, 2015. Also called "Know Before You Owe," the new rules are designed to make it easier and less confusing to shop for a home loan. They also aim to protect consumers from taking on too big a mortgage or from agreeing to conditions and risks they don't really understand.
To help explain the changes I interviewed Tracy Kearney, VP of Mortgage Lending at Guaranteed Rate.
What is TRID and how is it different from how mortgages were done before?
TRID, which stands for TILA-RESPA Integrated Disclosure, is a new rule that applies to most home mortgages. The rule does not apply to financing HELOCs (home equity lines of credit), reverse mortgages, land, mobile home purchases or commercial transactions. There is also partial exemption for certain transactions associated with housing assistance loan programs for low-and moderate-income consumers.
Previously, Federal Law required lenders to provide two different disclosure forms to consumers when they applied for a mortgage. The law also required two different forms at or shortly before closing on the loan. The two different Federal agencies developed these forms separately, under 2 federal statutes; Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act of 1974 (RESPA). The information in these forms was overlapping and the language was inconsistent, often leading to confusion for consumers and burdensome for lenders and settlement agents to provide and explain.
TRID now combines two disclosures previously used (Good Faith Estimate (GFE) and the initial-TILA) into one document, called the Loan Estimate (LE). The Loan Estimate clearly outlines the loan amount, interest rate, monthly payment, estimated taxes and insurance and how much cash the borrower will need to close. Since all lenders will be required to use the same form, it will be easier for consumers to compare mortgage products across lenders, which was not the case before.
The lender is required to provide the borrower with a Loan Estimate no later than the 3rd business day after the borrowers submit their loan application. A loan application is considered received by the lender when the consumer provides the following 6 items of information:
- Social Security number
- Property Address of home they are buying
- Estimated value of the property (i.e., an appraisal)
- Mortgage amount sought
Importantly, this is not the only information the lender will require to approve a loan. Once the borrower receives the Loan Estimate and gives the lender the go-ahead to proceed with the loan, the lender will ask for other documentation, such as bank account statements, pay stubs, a copy of the purchase contract, etc.
There are two other documents used previously, the HUD-1 and final TILA disclosure, which have also been combined into one document, called the Closing Disclosure (CD). It is designed to be more easily understood and transparent for consumers including:
- An explanation of mortgage terms
- A table that clearly indicates what has changed from the Loan Estimate
This form must be provided to consumers at least 3 business days before consummation (closing) of the loan.
When did the new rules take effect?
Any purchase contracts written after October 3, 2015 are subject to the new rules.
How does this help the consumer?
The intent of this change in regulation was two-fold: to ensure that consumers (home buyers and sellers) are provided with helpful information about the cost of mortgage settlements, and to protect borrowers from unnecessarily high settlement cost created by certain abusive practices.
How does it change the home buying process?
Under the new regulation, it is mandated that mortgage documents are in at least 3 days before closing. To put simply, the buyer must receive the Closing Disclosure (CD) at least 3 days before closing. Any last minute changes to the forms (i.e. lender fees, title fees, cash-out, ANYTHING) requires the clock to start over which means many closings have the possibility of being delayed.
How does it affect the timing of my closing?
Technically TRID adds six days to the process. It tacks on three days to the front of the mortgage application process for the borrower to review the Loan Estimate and another three days at the end to review the Mortgage Disclosure. However, for lenders who were well-prepared for TRID, there has not been a major impact on the overall time it takes to process a loan because they have figured out how to shave off days in the middle of the process.
That said, it is, in large part, up to the borrower. If you want to get your mortgage on time, you need to give your lender all the documents and information it asks for, immediately.
How do the new rules affect home sellers?
Real estate agents and sellers will be impacted because any delay in a chain of closings will postpone subsequent closings. The era of back to back same day sell/buy closings may prove to be very challenging as a result of the 3 day document lock rule.
Who is responsible for making sure the new rules get followed?
The lender or creditor is responsible for ensuring that the Closing Disclosure (CD) meets the content, delivery and timing requirements.
What advice would you give a home buyer to help make their home purchase and loan approval go more smoothly?
Get all requested documentation to your lender as quickly as possible.
Avoid last minute changes to the loan to avoid delay and prevent an additional three business day wait;
Work with your real estate agent and the seller’s agent to conduct home inspections, order reports (e.g., pest inspection), and clear any contingencies within the first few days;
Schedule your final walk through well before the Closing Disclosure is issued, if possible, not right before closing as was done previously. That way, if you discover an issue at the walk-though you can get it resolved without delaying your closing.
Tracy Kearney is VP of Mortgage Lending at Guaranteed Rate. Her goal is to help her clients reach their dreams of home-ownership by offering custom-tailored financing products and first class service. When Tracy is not helping her clients, she is working hard to strengthen her community through board service on The District 39 Board of Education and Youth Connection of Wilmette. She can be reached at 773.710.9600.
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