The new “Know Before You Owe” or TILA-RESPA Integrated Disclosure Rule (TRID) from the Consumer Financial Protection Bureau began in Oct. 2015. The new rule has created new mortgage disclosure forms and has change the way real estate transaction are processed and closed. Scotty Ball, a real estate attorney, with Stewart Melvin & Frost discussed the biggest change in the closing process since 1978.
Question: Scotty, will you give us an overview of the new disclosure rule?
Scotty: The new rule eliminates some duplicative disclosures. There are no more HUD-1s and no more good faith estimates. The new disclosure documents are the Loan Estimate and the Closing Disclosure. The reason for the Loan Estimate document is get the critical information about the loan into the hands of the borrower as early as possible so the borrower can review it carefully and not be rushed.
The Loan Estimate includes loan amount, interest rate, monthly principal and interest, and estimated monthly payment. The Loan Estimate also answers two important questions for the borrower:
• Can the monthly loan amount, interest rate and monthly principal and interest increase after closing?
• Does the loan feature either a prepayment penalty or balloon payment?
The Closing Disclosure replaces the HUD-1. The first page mirrors the first page of the Loan Estimate document so the borrower can compare them. The Closing Disclosure includes disclosures of:
• Whether or not the loan can be assumed
• Can the lender demand early repayment
• When the lender can charge a late fee and how much
• Does the loan include an negative amortization feature
• And will the lender accept partial payments
The remainder of the Closing Disclosure is similar to the HUD-1 but presented in an easier to read format.
Question: What are the goals of the new law?
Scotty: The intent is to make it easier for borrowers to shop for a mortgage loan and to have a better understanding of what kind loan they are getting and to avoid any surprises at closing.
Question: What are the most noticeable changes that home buyers will notice?
Scotty: There are several deadlines built into the new rules that borrowers will notice.
After a loan application creates a loan estimate document for the borrower, there is a seven business day waiting period after the delivery of the loan estimate before a closing can occur. Previously, you could rush to closing if needed but the new rules virtually eliminate closing a loan in less than seven business days.
A borrower can waive the seven day waiting period but only if they can prove it is a bona fide personal financial emergency. Exactly what is a financial emergency is determined on a case-by-case basis. Another change is there is no more seeing the closing documents for the first time at the closing table. The borrower now has to receive the Closing Disclosure three business days before the closing.
Question: Has the new law caused any problems?
Scotty: Any time there are changes – and these were significant changes – there are bumps in the road. There is not a lot of flexibility in the new rules.
For example, the rule concerning delivery of the Closing Disclosure three business days prior to closing has caused delays in the closings. If the Closing Disclosure does not arrive in the required time, the closing has to be delayed. Initially, there were some problems with new banking software for creating the new documents. Borrowers also have had to get used to lenders wanting delivery of financial documents at a faster pace to complete the loan. While transition is difficult, consumers are being given the tools to better understand their loan and the loan process.