Effective October 3, 2015, (extended from August 1, 2015) the Consumer Financial Protection Bureau (CFPB) will implement a rule intended to reconcile inconsistencies between two federal acts that regulate the mortgage qualification process. The new rule, known as TILA RESPA Integrated Disclosure (TRID), seeks to simplify standard loan documentation, limit fees charged to consumers, make documentation easier to understand, aid consumers in comparison shopping, prevent surprises at the closing table, and clarify timing requirements for disclosure of final loan terms and costs. Here’s what you need to know about the changes put forth by the new “Know Before You Owe Rule.”
In which transactions does TRID apply?
The new TRID law applies only to closed-end consumer credit secured by real property. It does NOT apply to: reverse mortgages, home equity lines of credit (HELOC), loans secured by a dwelling that is personal property (a manufactured or mobile home), and certain no-interest housing assistance programs.
New Form #1 – Loan Estimate
Two existing disclosure documents – Truth in Lending (TIL) and Good Faith Estimate (GFE) – are being merged into one new 3-page document called the Loan Estimate. This document provides a summary of key loan terms and an estimate of loan closing costs. It must be delivered no later than the 3rd business day after the application is received. After an interest rate is locked, the loan originator has 3 business days to provide a revised loan estimate. Delivery of the loan estimate also begins a required 7 business day waiting period before loan consummation.
New Form #2 – Closing Disclosure
The Final TIL (Truth in Lending) and HUD-1 will be combined into a new 5-6 page Closing Disclosure to help borrowers understand all costs associated with the loan. The Closing Disclosure must be provided at least 3 business days before loan consummation and it is considered delivered 3 business days after being placed in the mail. Therefore, in this case, Saturdays are included in the definition of “business day”. It is also important to note that a loan is consummated when a borrower becomes contractually obligated to a creditor, not a seller, on a real estate transaction. The seller’s copy of the Closing Disclosure is not subject to the same timing requirements and can be delivered before or at loan consummation. No fee is charged for preparing or delivering the Closing Disclosure.
How to Avoid Closing Delays
Consistent communication among REALTORS®, settlement agents, loan originators, title service providers and creditors will ensure a smooth process and help avoid last minute changes that cause delays. If a change occurs after the initial Closing Disclosure is provided, but before consummation, the creditor is generally permitted to provide a revised Closing Disclosure at or before consummation. But the following changes will require a new three business day waiting period, in addition to re-disclosure:
- APR becomes inaccurate (Only if APR increases).
- Loan product changes (For example, a change from adjustable rate to fixed rate).
- Addition of a prepayment penalty
In order to assist both business partners and clients, RPM has committed various resources to ensure successful implementation of the new TRID rule. Our dedicated integration team is working with our loan origination system and document vendors to prepare for the October 3rd effective date. Our vendor management team is working with settlement agents to ensure early communication of fees and a comprehensive training program is in place for RPM employees.
For assistance in understanding and preparing for the upcoming regulatory changes, please contact a loan advisor near you.