There are changes afoot with the implementation of the Consumer Financial Protection Bureau’s (CFPB) Know Before You Owe mortgage disclosure rule. With a few notable, new hoops to jump through, there will more than likely be other unintended consequences.
As with most laws and regulations, this new rule comes in response to abuses of the mortgage loan system. Too many consumers were going to the settlement table not knowing what their final charges consisted of and when they did find out, realized they were different than what they were “promised”.
TRID Know Before You Owe Mortgage Disclosure Rule
- Protect nonpublic personal information of you, the consumer.
- Every borrower should understand the costs of their mortgage loan. The mortgage should be made understandable by giving adequate, timely and illustrative disclosures. These understandable disclosures must be able to clearly explain the costs associated with a particular loan and the way your nonpublic personal information will be protected.
- Everyone likes surprise birthday parties and unexpected gifts. Contrast this with the surprise that was unexpected. The new Closing Disclosure is expected to eliminate surprises at the settlement table regarding your new financing by providing the disclosure at least 3 days prior to the consummation.
These disclosures have been created by the CFPB to improve the borrower’s understanding of their closing costs, making it easier for borrowers to comparison shop and, ultimately, to protect the consumer experience.
TRID Changes in Terminology
And just to make it more fun, the CFPB has created new names for the forms, the transactions and everyone involved. You, the borrower will now also be known as the “Consumer”. The lender’s new term is “Creditor”. Okay, that’s not so different. The new disclosures known as the “Loan Estimate (LE)” and the “Closing Disclosure (CD)” are described below. The one that has drawn the most interest and chuckles is “Consummation” which is the new replacement for the former settlement or closing.
Loan Estimate (LE)
This new form will combine and replace three former disclosures:
- Good Faith Estimate or GFE;
- Truth-in-Lending or TIL; and the
- Right to Receive a Copy of the Appraisal.
The Loan Estimate must be disclosed in good faith, containing terms and costs that are as close to the actual terms and costs as reasonably available to the loan officer.
Like the Good Faith Estimate and TIL, the LE must be disclosed to the consumer within three business days of receipt of a loan application, but no less than 7 business days before consummation. It includes a “Cash to Close” estimate. The varying settlement service fees must be listed in alphabetical order under different subcategories.
Closing Disclosure (CD)
This is the one they will be talking about, the one that may cause whatever timing problems to exist. This new form will combine and replace two former disclosures:
- Settlement Statement or HUD-1; and the
- Final Truth-in-Lending or TIL.
The Closing Disclosure is a 5 page document that must contain the actual terms and costs during the consummation process for the transaction. There may be estimates involved for taxes where a new tax rate has not been set. Regardless, the estimates must be completed with due diligence.
The CD must be received by the borrower three days prior to consummation. This one stipulation, while conceived to be in the consumer’s interest may also create the most hardship due to potential delays.
The Final Revised Rule allows either the creditor or the settlement agent to prepare the Closing Disclosure and provide it to the consumer within the 3 day period prior to consummation. Rest assured, since the creditor is ultimately liable, they will decide who discloses the document as only one of them may do so.
On financed home purchase transactions, a borrower and/or seller can request separate versions of the CD. The details of the Seller’s portion of the transaction can be disclosed on a separate CD and will not be included in the borrower’s CD.
TRID is an acronym for TILA RESPA Integrated Disclosures
The CFPB is finalizing Saturday, October 3 as the effective date. Get Your loans in before that if at all possible and avoid any potential hassles due to the coming change.
The Sky Is Not Falling
The most important takeaway may be that although there will be transition period with hiccups, this is not the end of the world. We will get through this as we have in the past. We all need a very clear, simplistic understanding of the changes and their consequences.