New mortgage documents: What are they?
The Consumer Financial Protection Bureau recently took steps to improve consumer education and awareness during the home loan process.
Lenders must now provide borrowers with two new, simpler documents – the Loan Estimate and the Closing Disclosure – and give borrowers at least three business days to review all of the final terms, costs and fees before accepting the loan. There are also limits on when and how much a lender can increase certain costs from what they listed in the initial Loan Estimate, which they must provide to borrowers within three business days of their initial loan application.
The new rules and documents are collectively called the TILA/RESPA Integrated Disclosure rules, or TRID.
New rules and new mortgage documents
The new rules aim to help borrowers better understand home loan offers, allow them to easily compare multiple offers, and alleviate last-minute cost increases.
Lenders must provide borrowers with two new, simpler documents – the Loan Estimate and the Closing Disclosure – and give borrowers at least three business days to review all of the final terms, costs and fees before accepting the loan.
Loan Estimate: TRID combines the Good Faith Estimate and the Truth in Lending Act disclosure documents into one form. These integrated disclosures are to be presented to the consumer within three days of taking a loan application.
Closing Disclosure: This document will bring the final Truth in Lending statement and the HUD-1 settlement statement (required through RESPA) together. This document is presented during the closing process.
The new forms are intended to make it easier for consumers to locate key information, such as interest rate, monthly payments and costs to close the loan. Additionally, it holds lenders accountable for the disclosure of all fees and potential fees so the consumer doesn’t receive any surprise charges at closing time.
Additional changes to the mortgage process
A few additional changes are presented through the TRID rule. Aside from these significant changes to the mortgage origination process, it will also clarify the application more thoroughly. If changes occur between the Loan Estimate and the Closing Disclosure, the lender has to create a new document and provide an additional three business days for the consumer to agree.
What does it mean to you, the borrower?
Borrowers will see some significant changes in the documents they sign during the loan application and closing process, but are more positively impacted by the additional information shared as a component of this new rule. The goal is to:
- Ensure consumers have ample access to key information they need to make borrowing decisions
- Limit the type and amount of changes consumers can see from the time they apply to the time they close on the loan
- Make it clear what the options are for borrower
- Provide more time for receiving and understanding information
- Provide more opportunities for consumers to ask questions and get clarification
From the consumer point-of-view, the changes are very positive, streamlining the process and providing better information.
What is the implication to agents and lenders?
New processes in the loan application and closing altered the way real estate agents and lenders do business. It is more important for lenders to provide more accurate documents during the Loan Estimate phase to minimize the need to make adjustments later. Additionally, agents will need to spend more time with consumers explaining the documents, terms, and details of any document signed while lenders.
The TRID rule went into effect Oct. 3, 2015 and applies to most mortgages with a closed-end limit, but does not apply to reverse mortgages.
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