TRID Clears the Air on Home Loan & Settlement Terms

By Ryan Dosen

 

New forms, new procedures, and new requirements are coming for real estate loans and settlements by way of the TILA-RESPA Integrated Disclosure (TRID) rule. For loan applications taken on or after October 3, 2015, Good Faith Estimates go the way of the dinosaur and lenders will have heightened requirements for getting you to the closing table. For consumers, the changes should largely be positive, unless you find yourself working with a lender or agent that is not prepared for the changes.

 

Changes to Loan Paperwork

Currently, lenders are required to provide their clients with Good Faith Estimates (GFEs) and Truth-in-Lending Act disclosures (TILAs). The GFE provides the consumer with lender, sales price, loan amount, interest rate, and type of loan information. The TILA provides the consumer with the loan’s interest rate, along with information about fees, such as loan origination fees, underwriting and processing fees, and other costs associated with the loan.

Starting on October 3, the GFE and TILA are replaced with a 3-page Loan Estimate form. The new form provides the consumer with much of the same information, but in a format that is supposed to be more easily digestible.

 

Changes to HUD-1

Currently, the HUD-1 Settlement Statement is the form that is signed at closing, summarizing all payments being made pursuant to a real estate transaction. The HUD-1 and final TILA forms are being replaced with a new 5-page Closing Disclosure form. In addition to providing a breakdown of financials, this form is used to disclose many of the terms and provisions of the loan.

 

Three Days of Review Before Closing

Under the current system, the HUD-1 Settlement Statement can be changed at any time prior to closing. Too often, last-minute HUD-1 changes happen as lenders scramble to adjust fees for the transaction. Consumers are sometimes not able to fully comprehend these last-minute changes, opting instead to just sign and get their keys. Unfortunately, this can wind up saddling them with something they did not sign up for. Under the new system, loans will not be able to close unless borrowers have had at least 3 days to review the Closing Disclosure form. Any changes to the Closing Disclosure form will require the start of a new 3-day waiting period. So, if your lender needs to change something a day before your contracted settlement date, you are going to wind up at least 2 days out of contract before you can settle.

 

What TRID Changes Mean for Consumers

Local mortgage expert Kenneth Feinman of Approved Mortgage in Doylestown, PA says that “TRID is all about putting the responsibility on the lender to make sure that all fees are disclosed and 100% accurate.” Feinman states that today’s lending environment allows for some discrepancy in the fees quoted to consumers and those actually charged at closing. But starting October 3, those days are gone.

Regarding the new 3-day review period for the Closing Disclosure form, Feinman says that in practice this “means that lenders are going to have to have their loans cleared to close at least 5-7 days in advance of closing or risk delays of not closing on time.” We routinely see loans that are not cleared to close a week in advance of settlement. In fact, against our recommendations, one of our recent buyer clients chose to use a large, national bank instead of a dependable local lending expert. That client’s loan wasn’t cleared to close until the day before settlement and the entire deal nearly fell apart. Under the new system, these sorts of delays will cause major problems, putting people out of contract and risking the loss of deals and deposits.

Feinman also states that “if there are changes to the APR by more than an eighth of a percent, a change in loan program, or prepayment penalty added before closing, lenders will have to re-disclose the Closing Estimate and wait another 3 days, further delaying the process. Therefore, it’s important to work with a lender that knows the new rules and that is prepared to close loans without delays.”

If you are planning on buying a home, unless you apply for a mortgage prior to October 3, 2015, these TRID changes will apply to you. Before saddling yourself with a lender, make sure that your lender has a clear plan in place for properly navigating the new changes and requirements.

 

– Ryan Dosen manages The Wayne Megill Real Estate Team of Keller Williams – Brandywine Valley in West Chester, PA. Contact Ryan Dosen to inquire about buyer or seller representation or to learn more about a career in real estate by emailing ryan@waynemegillteam.com or calling 610-399-0338.

This article was published by 21st Century Media and the Daily Local News (West Chester, PA). To read this article on the the newspaper’s site, please visit the Daily Local News.

To view all of Ryan Dosen’s 21st Century Media real estate columns, visit http://www.dailylocal.com/search?text=dosen.