New Mortgage Guidelines Starting October 3, 2015

New Mortgage Rules Aim To Simplify Information But May Slow Down The Process As of October 3rd, the TILA-RESPA Integrated Disclosure Rule (TRID) will require lenders to provide potential borrowers with more detailed rate and fee information. This process will also give borrowers more time to review documents before closing. When you think about buying a house, many questions may come to mind. Having the necessary information to make informed educated decisions is an important step in the mortgage loan process. Starting on October 3rd, 2015, new guidelines and regulations will aim to provide more details.  Mortgage rates and fee quote documents are a few of those details. What does this new regulation mean looking forward, and for those looking to get started in the journey of purchasing a home?

Guideline Background:

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Photo by j thorn explains it all

There are two regulations that are designed to protect borrowers from fee abuses currently:

  • The Truth In Lending Act (known as TILA or Regulation Z) established in 1968. This act protects borrowers from unforeseen closing cost abuses. The way in which it does this is by creating standards for the way mortgage fees and terms are calculated and communicated.
  • The Real Estate Settlement Procedures Act (known as RESPA or Regulation X) created in 1974.  This act aims to protect borrowers from false inflated real estate transaction costs.

As of October 3, 2015, the CFPB (Consumer Financial Protection Bureau) will bring together the two regulations mandated under TILA and RESPA into a simpler form. This is called the  TILA-RESPA Integrated Disclosure Rule, or commonly known as TRID.

With these new disclosures, the process might be slower-especially as lenders get used to the new rules.

Looking to the Future: 

Here is What Happens Prior to October 3rd:

  • Within three days of you applying for a home purchase loan, the lender must send you a Good Faith Estimate and an Initial Truth In Lending disclosure, these will show your quoted rate, sum of fees, terms and costs over the life of the loan.
  • Before closing (even if it’s the day of closing, which it often is), the lender will send you a HUD-1, which is a breakdown of all fees for the transaction, and a final Truth In Lending disclosure this will allow you to see if there have been any differences from the beginning.

Today’s process has been deemed too confusing and complicated by the CFPB.  The first time a borrower sees a HUD-1 which contains a formal breakdown of all the fees is at the closing table.  By that point it may be too late to make changes the borrower may see in their favor. In light of this information under the new TRID rules all new applications after October 3 will receive two disclosures.  One will be at the beginning and one will be at the end.

  • Within three days of you applying for a home purchase loan, the lender must sent you a Loan Estimate Form, which provides a detailed line-item breakdown of fees, cash needed to close, rate, terms and costs over the life of the loan. The lender must also obtain your intent to proceed before they can move forward.
  • At least three days before closing, the lender must send you a Closing Disclosure Form, which looks almost exactly like the Loan Estimate, but also separates which costs are paid by the buyer, seller, and third parties. What this means for the borrow is that you will have more time to make decisions and review the final terms of your agreement.

There will be some growing pains in the near future, as lenders, brokers, and other key players figure out the details of this new regulation. Talk to your lender today and ask what starting the lending process could look like for you.

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