Presently, two different Federal laws have defined different disclosure forms that are provided to consumers (buyers/borrowers) who apply for a residential mortgage. These different forms have been issued under the requirements of the Truth In Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA).
The Consumer Financial Protection Bureau (CFPB) has been directed to integrate these forms into new forms, which will replace the old forms entirely. This directive is the TILA-RESPA Integrated Disclosure Rule, or TRID, for short. The new rules of TRID affect mortgage lenders, brokers and homebuyers.
Two new documents will be provided to borrowers under TRID:
- First is the new Loan Estimate (LE), which is a combination of the present Good Faith Estimate (GFE) document, and the present Truth in Lending (TIL) document.
TRID requires that the lender must provide to the consumer (borrower) the LE document within three business days of receiving the loan application from the consumer, and no less than seven business days before consummation, which is defined as the date when the consumer signs the loan and becomes legally obligated to the creditor (lender).
The LE must be provided in “good faith” and must identify all fees in the transaction to be paid by the consumer, with specific limitations on how any of those fees may change before closing. Specific fees may change under those criteria, but the limitations are stringent.
- Second is the new Closing Disclosure (CD), which is a combination of the present HUD-1 and the present Final TIL document. The CD finalizes all of the fees to be paid by the consumer upon consummation (generally at close of escrow).
The CD must be provided not less than three business days prior to consummation. Regardless of how the CD is delivered to the consumer, the lender must properly document that the CD was delivered within compliance of the three-day time requirement.
The intent of both documents – the LE and the CD – is to protect the consumer by ensuring full disclosure from the lender, and by providing a time window of no less than three business days for the consumer to understand the fees, terms, and obligations to which he/she is committing.
If there are any changes to the CD by either party within the three-day window prior to consummation, then the time requirements must be reinstated. This means that if any change is made in the last three business days prior to close of escrow, the lender cannot fund (the transaction cannot close) until a new and agreed-to CD is provided to the consumer with a new three-day consideration period.
What TRID intends to be as a protection for the consumer (home buyer) actually can affect all parties in the transaction, including the consumer. In a real practical sense, TRID will require all parties to “have their acts together” sooner than later, otherwise all of the activities planned by all parties (and triggered by the close of escrow) will not occur, because if there is not 100% compliance with TRID, escrow close will be postponed until all requirements and dates are in compliance with TRID.
When will TRID become effective?
TRID will become effective law on October 3, 2015.
Homebuyers who require a mortgage should work with well-qualified lenders who fully understand TRID and who have implemented all TRID documents and processes into their lending schedules and requirements. Click here to see mortgage lenders who I recommend.