Whether everyone likes it or not, the TILA RESPA Integrated Disclosure Rule or TRID, is going to happen on October 1, 2015. TRID which is mandated as part of Dodd-Frank, is meant to help consumers to understand the key features, costs, and risks of the mortgage loan for which they are applying and is changing the process of a mortgage loan. All real estate attorneys, settlement companies, and mortgage lenders have been working frantically on education and updating software for these changes which are very different so make sure you understand this well.
There are two new forms created by TRID which are the:
- Loan Estimate (Replaces the Good Faith Estimate, Initial Truth in Lending, and the Servicing Transfer Notice)
- Closing Disclosure (Replaces the HUD, Final Truth in Lending, and Itemization of Amount Financed).
First of all, TRID covers all mortgage transactions except the following:
- HELOCS – Home equity lines of credit
- Reverse Mortgages – Learn more about Reverse Mortgages here
- Mortgages secured by mobile homes or dwellings that are not attached to real property (land)
- Loans made by creditors that make 5 or fewer loans per year
Frequently asked questions and answers about TRID: Click on the text to see what the forms look like
When do the new forms need to be used? These forms are to be used for Loan Applications taken on or after October 1, 2015. So any applications taken before this date would use all normally used forms from before (GFE, HUD, etc)
Can a lender collect fees from the borrower up-front? A lender may not collect any fees from a borrower prior to the issuing of a Loan Estimate and receiving an intent to proceed from a customer EXEPT for the collection of a credit report fee
When is a Loan Estimate to be provided to the borrower? A lender must provide the Loan Estimate within 3 business days of the loan application. 3 business days for the Loan Estimate means the normal operating business days so if a mortgage company is only open Monday – Friday, those are the days counted other than Federal holidays.
How does the closing work now? Now a lender is to provide the borrower with a lender prepared Closing Disclosure 3 business days prior to the closing. 3 business days prior to the closing has a different definition and this is all days except Sundays and federal holidays. This gives the borrower 3 days to review the numbers, have their funds ready for closing, and be able to plan on with great certainty that their purchase will close on the closing date (barring issues such as the buyer’s home they are selling doesn’t close or other such issues).
Once the Loan Estimate is disclosed to the borrower, can the numbers change? Yes, there can be changes in certain fees and each group of costs has certain tolerances ranging from zero tolerance to not having a tolerance. For instance, costs to the lender or that the borrower may not shop around cannot increase unless there is an allowable Change of Circumstance such as going from floating to a rate lock, acts of God, hurricanes, earthquakes, credit score changes, removal of a borrower, change in loan program or loan amount, consumer requests a change, the loan estimate expires, delays in settlement date on a construction loan, or change in appraised value. The lender has no control of the before mentioned items so changes because of these are ok. An appraisal falls into the category of zero tolerance because the borrower may not choose an appraiser so this fee may not increase unless there is a valid change of circumstance. There are certain items (insurances, escrows, and daily interest) that the lender is not held to a tolerance because it is very hard to predict how much a borrower’s insurance may cost which then makes predicting the escrows tough and then the closing date could change for many reasons so the daily interest is not held to a tolerance.
What is the deal with closing the mortgage loan twice? There are not two closings. Once the loan has final underwriting approval, the borrower is provided a Closing Disclosure with the final numbers 3 days prior to the closing and on the date of the closing, the borrower(s) attend closing to sign all of the paperwork.
I have heard that if anything changes at all after the Closing Disclosure is provided that the 3 days has to start over, is that true? No, the only changes that require a new 3 day wait period are:
- APR becomes inaccurate if changes made by the lender cause the APR to increase greater than 0.125% on a fixed loan or .25% on ARM’s
- Changes to loan product
- A prepayment penalty is added to the loan
How is the Loan Estimate different from the prior Good Faith Estimate and Truth in Lending?
- Believe it or not, the 2010 GFE did not show a full payment with escrows for taxes and insurance or the estimated cash to close and the Loan Estimate does show this which is much better.
- The Loan Estimate shows the projected payments for years 1 – 7 including principal, interest, & PMI (if applicable) so this will account for adjustable rates changing or for PMI being removed or reduced in the future
- Page 3 shows the first 5 years total to be paid by the borrower in principal, interest, mortgage insurance, and loan costs as well as the principal that has been paid by the borrower on the loan
- Rather than the Truth in Lending showing the total of payments made over the life of the loan, the Loan Estimate shows the percentage of the loan amount paid in interest over the life of the loan. For instance, it may state 69% is the “total amount of interest that you will pay over the loan term as a percentage of your loan amount. This does not mean that you are paying a rate of 69% of course
How is the Closing Disclosure different from the prior HUD settlement statement and the Final Truth in Lending?
- The biggest change we believe is that now the lender prepares the final numbers instead of the closing attorney or settlement company. This even includes completing the seller side of the transaction.
- The Closing Disclosure states right on the front page a summary of the payment, total costs, etc rather than the HUD showing these items very small on page 3.
- The Closing Disclosure shows how much the payment will be with principal, interest, and PMI for years 1 – 7 and then 8 – 30 which was sort of shown on the Truth in Lending before
- There is a clearly defined borrower paid column and seller paid column for determining who pays the different costs of the transaction
- The Closing Estimate has a clear summary of the costs and cash to close comparisons with the initial Loan Estimate and shows how much any numbers changed (if any) and shows where to see the differences. This will put an emphasis on lenders being as accurate as possible up-front in the process which we are very good at.
- Pages 4 & 5 of the Closing Estimate has some definitions, statements about prepayment penalties and such if they apply, and the contact information for the lender, closing agent, listing agent, and buyer’s agent.
What is the key to closing a loan on time without headaches? Communication with the borrowers, communication to the realtors, communication with the title company / attorney, and communication with the lender. This is where our Team Move excels as we make sure that we communicate consistently with all parties so that no one gets lost in the transaction.
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Click here to learn more about TRID and answer any question you have
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