Big Changes in the Mortgage Industry

The Consumer Finance Protection Bureau has substantially overhauled the compliance and disclosure requirements imposed on mortgage lenders, and established a new and more comprehensive set of requirements designed to better protect the consumer as they go through the mortgage process.  These new regulations went into effect in October, 2015.

There are two important components to the new regulations, known colloquially as “TRID” (TILA-RESPA Integrated Disclosure).  The new rules integrate the former separate disclosure requirements into one complete process.  These rules do not apply to all loan transactions, but generally they will apply to a conventional residential purchase money or refinance loan.

Under TRID, you will find that you will no longer receive a sheath of paper from the lender to wade through once you submit your loan application.  Instead, just two disclosure forms are involved.  The first is the Loan Estimate, which integrates the former Good Faith Estimate and the early Truth in Lending forms given to the borrower following application.  The new Loan Estimate combines the information on all prior forms into one more detailed and complete document, including an accurate disclosure of all closing costs.  The Loan Estimate must be provided to the applicant no later than three business days after a loan application is submitted. 

The second document is the Closing Disclosure (CD). This document integrates the former final Truth In Lending statement and the RESPA-required HUD-1 settlement statement.  The CD, in one comprehensive document, not only itemizes the final closing costs formerly shown on the HUD-1 form, but also states all of the other loan terms, rights and obligations in easy-to-understand language. The CD must also be provided to the applicant three business days before the loan closing.  If the final figures on the CD diverge from those on the Loan Estimate, the lender must explain why, and in some cases the divergence will require the lender to prepare and provide a new CD, also subject to an additional three day rule.  This gives the lender and other parties in the transaction incentive to get it right the first time.  And thankfully, gone are the days when an overworked and understaffed lender is scrambling to provide closing figures to a borrower just hours before a closing is to take place.   The new rule means the lender must be more organized ahead of time in order to meet the three-day rule requirement.

These are big changes, and there is a substantial learning curve still in process.  In my view, however, these rules will result in far better consumer protection, truth and transparency in the mortgage industry. 

And a (somewhat self-serving) P.S.:  TRID clearly states that the borrower may choose the attorney who will close the loan transaction; the lender may no longer refuse to work with the attorney of borrower’s choosing.  This means that if you are working with an attorney you like and trust, you may require that your attorney also close your loan.  I have written previously about the benefit to a buyer of using the same attorney for both the purchase and sale phase and the loan closing phase of the transaction. TRID now ensures that the consumer is entitled to that benefit, so you will be sure the entire transaction is handled by the attentive and competent lawyer you have selected.  Like me.