“Know Before You Owe”
The industry is buzzing about the new mortgage lending requirements that came into effect October 3, 2015. Although it is being billed as a way to simplify and clarify the process for homebuyers, many buyers and sellers are worried that these new regulations will make the buying and the selling process much more difficult and time-consuming. What is true? And what exactly are the new regulations?
TRID stands for Truth in Lending Act (TILA) Real Estate Settlement Procedures Act (RESPA) Integrated Disclosures. The Consumer Financial Protection Bureau (CFPB) created these revised disclosures due to changes in mortgage lending required by the Dodd-Frank Wall Street Reform and Consumer Protection Act, which was signed into federal law in July 2010 and brought significant changes to financial regulation. The Act’s stated purpose is: “To promote the financial stability of the United States by improving accountability and transparency in the financial system, to end ‘too big to fail,’ to protect the American taxpayer by ending bailouts, to protect consumers from abusive financial services practices, and for other purposes.” For the mortgage lending industry, this resulted in the creation of two new disclosures: the Loan Estimate form and the Closing Disclosure form. The purpose of these two new forms, as created by the CFPB, is to make it easier for consumers to understand the cost of getting a mortgage loan.
The new Loan Estimate form will be replacing the current Good Faith Estimate and Initial Truth in Lending that have been used in the mortgage industry for more than 30 years. The form consists of three pages. Page one will outline loan terms, projected payments, and cost at closing. It will include an “estimated cash to close” amount, which has not been disclosed in the past. Page two will include a breakdown of loan costs, other costs, and a summary of cash to close. In the loan costs breakdown, it will provide line items for origination charges, services you cannot shop for, and services you can shop for. A breakdown of “other costs” will list taxes, recording fees, prepaids, and initial escrow payment. A Calculating Cash to Close table will provide a summary of the charges and credits. Finally, page three will include the loan officer’s contact information and license number. It will also outline the annual percentage rate (APR), total interest percentage (TIP), a five-year cost comparison, late payment fees, and servicing fees.
These measures all sound like great changes that will be very helpful to the consumer! So why are people concerned that the lending process will take longer than it has in the past? Because a very important piece of this new disclosure rule is the timing. The final Closing Disclosure (that replaces the current HUD1 and final TIL) must be presented to the borrower three business days prior to closing. This is a big change, as currently many borrowers never receive their final figures until closing day. Due to this, it will be vitally important for all parties to work together in a timely manner to avoid delays. The Steller Group’s preferred lender has been preparing for these changes for more than a year now, and many lenders are focusing on fully pre-approving buyers before they even make an offer on a property, so that the contract-to-close process is seamless. As your trusted real estate professionals, we will be working diligently to stay in close contact with both the client and the lender to help avoid any bumps in the road. If you have questions about any aspect of real estate, including refinancing and loans, please don’t hesitate to call us: (303) 539-5228.