Buying a house? Here’s a look at recent mortgage disclosure changes
If you are in the market to buy a new home and need to obtain mortgage financing you need to know that as of October 3, 2015 significant changes to the closing process took effect due to the implementation of the Consumer Financial Protection Bureau’s (CFPB) rules for Integrated Mortgage Disclosure (TRID). The rule integrates forms required under the Truth-in-Lending Act (TILA) and Real Estate Settlement and Procedures Act (RESPA). A loan estimate (LE), which you will get from your lender no later than 3 business days after an application will replace the Good Faith Estimate. It is a 3-page document that includes a good faith estimate of credit costs and transition terms: projected payments, estimates for taxes, insurance and assessments, escrow provisions and the bottom-line costs of closing. The second page includes a calculation of how much you will need at closing with the final page giving certain disclosures about appraisals. Homeowners insurance, late payments and servicing. The page also includes a comparison chart marking how much the consumer will pay in 5 years, the APR and the total interest as a percentage of the loan. This allows consumer to compare loans.
Of course, once the LE is issued, it could be revised for a variety of reasons. One involves “changed circumstances” that cause estimated settlement charges to increase more than the permitted amount or affect either the consumer’s eligibility for the loan or the value of the property. Some examples are: the consumer’s income is less than previously stated on the application, the consumer requests changes to the credit terms or settlement, or if the interest rate was not originally locked and locking it changes points or credits. Further, an LE is good for only 10 business days. A consumer cannot be charged any fees (such as an application or appraisal fee), until the consumer receives the LE and indicate that they wish to proceed with the loan. The only exception is a bona fide and reasonable fee for obtaining the credit report.
You will also get a Closing Disclosure (CD) at least 3 business days before the closing which replaces what was commonly known as the HUD-1. The CD is 5 pages long with the first being identical to the first page of the LE; the idea being that the consumer will compare the first two of each form. The next two pages include the breakdown of closing costs with columns indicating what party is paying for what. Page 3 has a table that compares estimates from the LE to the actual amounts on the CD. The last two pages contain additional information similar to the final page of the LE, plus a few more disclosures, such as a consumer’s liability after foreclosure. Like the LE the CD may also need to be revised. This can be triggered by changes to the APR, the loan product changes, or a prepayment penalty is added to the loan.
Together, these disclosures detail the consumer’s monthly payment, the costs of getting a mortgage, the costs to close and other pertinent information about the loan. The intent was to focus on the consumer’s understanding of the loan and resulted from the CFPB’s Know Before You Owe initiative and is applicable to new loan applications received after October 3.
To help speed the process, you should tell your lender to move forward as soon as you finish shopping for your loan. This comprises of at least 6 pieces of information: name, income, social security number (to obtain a credit report), property address, estimate value of the property and mortgage loan amount sought. TRID eliminated a catchall category which previously permitted lenders to require additional information or verification to complete an application. Give your lender any documents necessary to complete the loan as soon as possible. Read the LE and any revisions carefully so that any questions can be answered quickly. You are required to receive the LE at least 7 business days before “consummation of the loan”; typically, the closing. Avoid last-minute changes to the loan to avoid delay and prevent an additional 3 business day wait. Work with your real estate agent and the seller’s agent to conduct home inspections, obtain reports and clear any contingencies as early in the process as possible. Schedule e final walk-through well before the CD is issued. Tell your lender as soon as possible about any changes to the transaction that you think might impact the loan or the closing, and understand that this new disclosure process may add additional time to completing the loan.
TRID contains significant liabilities and doesn’t allow for much flexibility. Lenders are taking on more of the responsibility; therefore the number of attorneys permitted to close for lenders has shrunk considerably. There is also a strong likelihood that closings will be delayed directly due to TRID. For example, during a walk-through, it is discovered that an appliance is broken and the buyer requires the seller to repair it before closing. If that repair cannot be done quickly, the delay could cause the lock on the interest rate to expire which would mean the issuance of a new LE and CD. Only time will tell what the real impact of TRID will be and how it will impact the closing process. Since TRID only went into effect a month ago, we have just begun to experience its ramifications.