Realtors, mortgage lenders and title companies are freaking out! Halloween is coming early this year. It fact, it starts tomorrow. TRID begins for real estate contracts written from tomorrow forward and it increases the regulations required to get a mortgage loan as required by the Dodd-Frank Act.
Now, there’s no need for home loan consumers to freak out. This is a gentle monster for home buyers obtaining a real estate mortgage. In fact, they will be better protected by the regulations and disclosures that will begin as early as Monday morning. Disclosures are more clear. And, mortgage loans will be required to follow a standard process giving more time to consumers before plopping down a huge down payment.
TRID is one of the acronyms that we’re hearing when it comes to the new policies. TRID stands for TILA (Truth in Lending Act)/RESPA (Real Estate Settlement Procedures Act) Integrated Disclosure.
Transactions that fall into the new rules are those in which the loan application date is on or after the 3rd of October 2015. There are many transactions currently under contract that will close after October 3rd but fall under the old rules. There may also be contracts written after October 3rd that will fall under the old rules.
This brings up the question as to what constitutes a completed loan application is. A lender has received a loan application when borrower has delivered the following six items to the lender:
- The consumer’s name
- Consumer’s monthly income
- Consumer’s social security number to obtain a credit report
- The property address
- An estimate of property value
- The loan amount sought
Here’s a quick breakdown based on the information I’ve gathered in researching the subject and attending Realtor classes at two different local title companies.
The other acronym is CFPB or Consumer Financial Protection Bureau. CFPB is an entity created by the Dodd-Frank Act to ensure stability of the United States financial system by improving accountability and transparency by financial institutions. The CFPB has created two forms to help the consumer better understand what they’re agreeing to.
The changes will impact buyers primarily since it is the buyer who obtains a loan when purchasing a home. The changes being implemented will impact the current Good Faith Estimate, Truth in Lending, and the HUD1 settlement statement, which will now be replaced by the new simplified Loan Estimate and Closing Disclosure forms.
The new Loan Estimate form was designed to assist buyers / borrowers in better understanding the terms of the loan including which of these terms can potentially change in the future as can be the case with an ARM (Adjustable Rate Mortgage). Buyers will also be able to clearly read projected payments, including the effects of having Mortgage Insurance as part the monthly payment. Lastly, closing costs and down payment are broken down in manner that is clear and precise and are separated to show the consumer which costs and services they can shop for and which are, in essence, fixed costs.
The Closing Disclosure has been set up to look a lot like the Loan Estimate. This was done to assist the buyer in being able to look at the final numbers in a format that they’ve seen before. One of the more useful sections in the Closing Disclosure is in the Cash to Close section which compares actual closing figures to the figures from the Loan Estimate.
The biggest change with these new guidelines is the fact that the buyer will receive the Closing Disclosure at least 3 days prior to the closing of the property. This is a huge improvement from the current process where the buyer often has to wait until the actual closing day to see final figures. The new process will allow the buyer to review the paperwork for any discrepancies and have any questions or concerns addressed prior to closing.
Overall, I truly believe these new guidelines are scary at all. They are an improvement over the current ones and will have a positive effect for all consumers obtaining a mortgage loans. Realtors and lenders will have a learning curve but after a few months, we will all be back to real estate business as usual. In the meantime, please ask me any questions on this contact form or by commenting at the bottom of this page.