As of October 1st, home buyers will be armed with more information about their mortgages, and will be given more time to review their mortgage rate and fee quote documents.
Right now, the law requires borrowers to fill out two disclosure forms when applying for a home loan. In addition, two forms also need to be completed on or just before closing. These forms were intended to protect borrowers from fee abuses, and have been around for a while.
The Truth In Lending Act (also known as TILA) is designed to protects borrowers from being blindsided by unknown closing costs by regulating how mortgage fees and conditions are calculated and communicated.
The Real Estate Settlement Procedures Act (also known as RESPA) protects borrowers from being victimized by unnecessary real estate transaction expenses by preventing various housing services from paying each other money in exchange for customer referrals.
Currently, borrowers are required to receive a Good Faith Estimate and an Initial Truth In Lending disclosure within three days of applying for a mortgage. This disclosure document outlines the quoted interest rate on the mortgage, terms, and total fees over the course of the loan.
Lenders also have to provide borrowers with a HUD-1 before closing. This form stipulates in detail all the fees associated with the real estate transaction, including exactly how much money will be needed to close on the transactions, and the final Truth In Lending disclosure.
Simplifying the Process With the New TRID Rules
While this information is very helpful for consumers, it can be rather complex to figure out. Not only that, but consumers may be too late to make any adjustments after comparing the initial Good Faith Estimate and an Initial Truth In Lending disclosure to the final HUD-1.
The Consumer Financial Protection Bureau (CFPB) has taken over these regulations, and combined them to form the TILA-RESPA Integrated Disclosure Rule (TRID) which will take effect October 1st this year. The process is made simpler under the new TRID rules with the merging of the Truth-in-Lending form and the HUD-1 form to create The Closing Disclosure, a unified 5-page document. Only the buyer will receive the Closing Disclosure.
These new disclosures are aimed to provide borrowers with much more detailed information about their mortgage packages, and will give borrowers a lot more time to review them. Consumers are to receive a Loan Estimate Form within three days of applying for a mortgage. This form outlines the breakdown of fees, interest rate, amount of money necessary to close, conditions, and costs over the life of the loan.
Consumers will then receive a Closing Disclosure Form a minimum of three days prior to closing. This form is very similar to the Loan Estimate document, but also differentiates the expenses paid by the buyer, seller, and other parties involved in the transaction. This gives borrowers more time to go over the final terms of the mortgage. But because of such an extension of time to go over these documents, the closing process will also take longer to complete.
Borrowers will have the advantage of greater transparency in accurate disclosure of all fees associated with their home loan. After the borrower applies for the loan, lenders will have to disclose these numbers.
Since the fees will be alphabetized and categorized, it should be easier for borrowers to compare estimates between mortgage lenders. Loan Estimates (LE) expire after 10 days, but buyers are not obligated to continue the transaction. However, once the borrower decides to proceed, the fees are then locked in.
If you’re planning on applying for a mortgage in the near future, be sure to speak to your mortgage specialist to find out exactly how these new rules will affect your home loan process. While home buyers should anticipate a 3-day delay in closing, the new TRID rules should improve the overall mortgage and closing process.