TRID – Truth-In-Lending RESPA Integrated Disclosure
The new mortgage disclosure guidelines that became effective in October 2015 should remove a lot of anxiety for home buyers. The guidelines changed because under the previous system, Federal law required mortgage lenders to provide three different disclosure forms to a consumer applying for a mortgage and two separate forms shortly before closing. The forms were designed by two different Federal agencies, under two different statutes – the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act of 1974 (RESPA). This caused duplication of information and inconsistencies which caused confusion for consumers. The Dodd-Frank Act mandated that these forms be combined into one easy-to-understand document which is now known as the RESPA-TILA rule.
It is important to understand that while some changes will trigger consumer disclosure requirements, most will not. According to the Consumer Financial Protection Bureau (CFPB), only three changes could cause a closing to be delayed:
- If the annual percentage rate (APR) of the loan increases by more than 1/8th of a percent for fixed rate loans or 1/4 of a percent for adjustable loans. A decrease in APR will not require a new three-day review if the reduction is based on a change in the interest rate. Lenders have been required to provide a three-day review for these changes in APR since 2009.
- If a prepayment penalty is added, making it expensive to refinance or sell.
- The basic loan product changes, such as a switch from a fixed rate to adjustable interest rate or to a loan with interest-only payments.
According to the CFPB, the following types of changes to the Closing Disclosure (formerly known as the HUD-1 Settlement Statement) do not require a closing delay:
- Unexpected discoveries on a walk-through such as inoperable appliances, even if they require financial credits from the seller to the buyer.
- Changes to payments made at closing, including the amount of the real estate commission, taxes and utilities proration, and the amount paid into escrow.
- Typos found at the closing table.
These new regulations were put into place to provide protection for consumers. Getting a property to a closing is a group effort. It is important now under the new regulations for buyers to apply for their mortgage and provide documentation required by the lender in a timely manner. The lenders must adhere to the guidelines set forth in the regulations which could impact a transaction. Communication between all parties in the transaction is key to ensuring a successful and smooth home buying process!