KNOW BEFORE YOU OWE
Change is afoot in the mortgage
industry. Welcome to TRID
which goes into effect on October 3, 2015. This new rule primarily does
two things:
1. It simplifies and consolidates some of
the required loan disclosures, and
2. It changes the timing of some
activities in the mortgage process.
Two Important New Documents:
The Loan Estimate (LE) combines the old Good Faith Estimate
(GFE), Truth-In-Lending (TIL), and the servicing disclosure (which told you
whether your loan could be sold). The LE uses large print and simple language
to set forth loan terms and the costs associated with getting a mortgage.
It is arranged in a way that makes it easy to understand at a glance the loan
amount, rate, principal and interest payment, and the progression of the loan
over time. After reviewing this document, the borrower must indicate their
intent to proceed with the loan – this can be done by telephone, email, or in
writing (by mail or other delivery).
The Closing Disclosure (CD) combines the TIL disclosure, the Itemization of Amount Financed, and the HUD-1 Settlement Statement into one, easy to read, document that is a mirror of the LE. The goal of CFPB in developing the LE was to allow borrowers to be able to compare what they were told they were paying to obtain a mortgage (LE) to what they are actually paying (CD) at the table.
These two documents, once implemented and understood, should go a long way toward simplifying the lending process and helping consumers (the goal of the CFPB) understand the terms and costs of the loans they are obtaining.
The Closing Disclosure (CD) combines the TIL disclosure, the Itemization of Amount Financed, and the HUD-1 Settlement Statement into one, easy to read, document that is a mirror of the LE. The goal of CFPB in developing the LE was to allow borrowers to be able to compare what they were told they were paying to obtain a mortgage (LE) to what they are actually paying (CD) at the table.
These two documents, once implemented and understood, should go a long way toward simplifying the lending process and helping consumers (the goal of the CFPB) understand the terms and costs of the loans they are obtaining.
TRID is an alphabet soup of changes – now more than ever you
need a professional loan officer who works for a company that understands the
rules and knows how to timely deliver your mortgage!
7
FACTS ABOUT THE NEW PROGRAM
1. Preapprovals and pre-qualifications are unchanged by the rule.
The
more time and effort the applicants invest in learning about home loans and
defining what they want and what they’re capable of financing before they
select a home, the smoother the path from contract to closing will be and the
more targeted the shopping process can be.
2. The application process begins with a
Loan Estimate (LE).
The
application process typically begins after the buyer has identified a
property. Lenders must provide LE’s
within 3 business days after the buyer has provided the lender with 6 key
pieces of information. Although lenders
may accept and consider income verification documents and other information
voluntarily provided, they cannot require this documentation as a condition of
providing an LE. Issuing an LE does not
mean that the lender has approved or denied the loan. By issuing the LE, the lender has committed
to honoring the fees described in the LE as long as the loan is later approved
without any changes in circumstances affecting the loan application.
Tip: The lender must
provide the LE within 3 business days, but there is no set time frame for the
applicant to receive it.
3. Applicants must indicate their intent
to proceed.
Once
the applicants have compared Loan Estimates and determined which loan best
meets their needs, they need to let the lender know. If the applicant is silent, the lender cannot
assume an intent to proceed. There may
be different requirements for what applicants need to do to indicate their
intent to proceed with the lender.
Generally, lenders won’t move forward with an application without a
clear indication from applicants to proceed with the loan. And, after 10 business days without that
indication, the lender is no longer required to honor the terms initially
offered in the LE. After 10 business
days without an intent to proceed, the file can be closed and the applicants
will need to start over with a new application.
4. Once the applicants indicate their
intent to proceed, lenders can charge fees.
Until
the applicants indicate their intent to proceed, lenders can’t charge any fees
in connection with a mortgage application, including an application or
appraisal fee. The only exception is a
reasonable fee for the credit report.
Payment
information can be obtained only after the lender provides the LE and the
applicants have expressed their intent to proceed. Since lenders cannot collect payment
information in advance, they may require applicants to provide payment for an
appraisal, application or other loan processing fees immediately after or as
part of confirming their intent to proceed with the application.
5. A changed circumstance may mean a
revised LE or CD.
A
lender is responsible for providing accurate pricing information for the loan
requested, based on the best information reasonably available to the lender at
the time the disclosure is provided.
However, if the information about the applicant, the proposed loan, or
the property was incorrect or changes, a revised LE may be issued. This can be referred to as a changed
circumstance. A new LE can reflect
changed rates and terms caused by the new information.
Not
all changes require the lender to issue a revised LE. Minor changes, for example when the seller
agrees to pay for a specific cost not included in the original agreement, do
not require the lender to issue a revised LE.
In that case, however, the loan may need to go back to underwriting – so
it’s best to notify the lender of any changes as soon as they are known.
Common
reasons why an LE may be revised include:
a. Applicant decided to change loan
programs or the amount of the down payment.
b. The appraisal on the home came in
higher or lower than expected.
c. Applicant’s credit status changed,
perhaps owing to a new loan or a missed payment.
d. The lender could not document overtime,
bonus, or other income provided on your client’s application.
e. Unexpected fees developed such as condo
certification fees that were unknown at the time of the application.
If
changes occur later in the mortgage process, lenders may need time to respond. For example, if your client requests a
different loan program late in the process, an appraisal or underwriting step
may need to be repeated.
6. Applicant must receive the CD at least
3 business days prior to closing.
Lenders
need to make sure that the borrowers receive the CD at least 3 business days
before closing. This gives the borrowers
time to review a summary of the final loan terms. Borrowers should no longer be faced with
significant changes from the lender and be pressured to sign on the same day.
The CD can be compared with the
information contained in the initial or revised LE. Flexibility has been built into the rule to
accommodate small, last-minute changes typical of purchase transactions. However, when changes to the transaction are significant,
a new 3-business day review period is required.
Since large, last-minute changes should be rare, an additional review
period should also be rare. Most
settlement issues, such as adjustments to seller credits to account for
repairs, that are currently addressed as late as the day of closing can
continue to be handled at closing without requiring a new 3-business-day review
period. However, the lender will need an
updated underwriting approval of any additional seller credits so these should
be communicated immediately to the lender.
TIP: The CD must contain the buyer’s and the
seller’s real estate brokerages’ and agents’ names, addresses, state license ID
numbers, email addresses, and phone numbers.
If this information is unknown, the form cannot be completed. Agents will need to communicate this
information as early in the transaction possible to prevent delay.
7. Extra 3-day reviews are unlikely.
While
most changes that come up in the last few days before settlement will not delay
a closing, there are three major changes to loan terms that will require the
lender to issue a revised CD and will trigger a new 3-day business-day review
period. These are:
a. The APR (annual percentage rate)
increased by more than 1/8 of a percent for regular loans (most fixed rate
loans) or 1/4 of a percent for irregular loans (most adjustable loans). A decrease in APR will not require a new
3-day review if it is based on changes to the interest rate or other fees. (Note: Lenders have been required to provide a
3-day review for these changes in APR since 2009.)
b. A prepayment penalty is added, making
it expensive to refinance or sell.
c. The basic loan product changes, such as
a switch from fixed rate to adjustable interest rate or to a loan with interest-only
payments.
No
other changes
require a new 3-day review. Any other
changes in the days leading up to closing do not require a new 3-day review,
although the lender will still have to provide an updated disclosure.
For example, the following circumstances
do not require a new 3-day review:
a. Unexpected discoveries on a walk-through
such as a broken refrigerator or a missing stove, even if they require seller
credits to the buyer. However, the
lender must be notified immediately of any additional seller credits to obtain
an updated underwriting approval.
b. Most changes to payments made at closing,
including the amount of the real estate commission, taxes and utilities
proration, and the amount paid into escrow.
c. Typos found at the closing table.
I look forward to seeing you at the closing table soon!
Diane
Pyshos, A & N Mortgage Services, Inc.
1945
North Elston Avenue, Chicago, IL 60642
Office: 312-909-9718, Email: dianep@anmtg.com
NMLS
License #137800, Company NMLS License #19291
