If you are planning to start home-loan hunting to finance the purchase of a new or existing dwelling now or in 2016, better clip this article and keep it so you avoid becoming a mortgage dummy.
Once you wade through the alphabet-soup the federal government uses to describe the nation’s newly revised mortgage-application process, understanding what you are signing will be a breeze.
First, some background. The U.S. Congress enacted the Dodd-Frank Wall Street Reform Act to help control the banking industry’s predatory lending practices, which sparked the mortgage foreclosure crisis and the Great Recession of 2008.
Experts say the nation’s banking crisis happened because there were too many gaps in regulation and no one was looking out for the system as a whole. The Dodd-Frank Act created the Consumer Financial Protection Bureau (CFPB) to prevent mortgage abuse in the future.
The CFPB was given the task of revising and simplifying the rules regarding home loan disclosures as they apply to mortgage lending under the Real Estate Settlement Procedures Act (RESPA) and the Truth in Lending Act (TILA).
Starting on October 3, 2015, lenders must implement the new integrated disclosure rule—called TRID—on all mortgage applications set forth by the bureau. TRID stands for TILA-RESPA Integrated Disclosure.
While the new TRID rule is designed to simplify the home loan process, it also will take longer—up to 45 days on average—to close a loan. However, under TRID, home-loan borrowers now will receive two key simplified and consolidated mortgage documents, instead of four:
• The Loan Estimate. This new mortgage document, given to a borrower when his or her loan application is approved, replaces the old Good Faith Estimate and initial Truth-in-Lending statement.
• The Closing Disclosure. This new document replaces the old HUD-1 Settlement Statement and the final Truth-in-Lending statement.
Borrowers must receive the Closing Disclosure document in writing three days prior to the closing. Any last minute changes in rates or terms trigger another three-day delay. So the borrower has time to read and understand all the terms and costs.
Now, you won’t have to be a math major to clearly see and understand exactly what you’ll be paying. The Loan Estimate will show the total loan amount, interest rate and charge, monthly loan payment, and other loan closing costs—all individually broken out.
A glance at the Closing Disclosure will tell borrowers exactly how much money they’ll be paying at the closing table, including costs for the appraisal and title search. The form also clearly shows the amount of the monthly loan payment, money escrowed each month for property taxes, homeowner’s insurance, and mortgage insurance.
So, theoretically, under TRID there should be no last minute surprises. The numbers should match the costs the borrower was originally quoted, and lenders will not be tempted to add on any hidden extra fees during the closing.
“TRID is about full disclosure to the consumer—and it’s long overdue in association-governed communities where excessive transaction fees, document charges, and upcoming special assessments are often hidden from buyers,” said Sara Benson, president of Association Evaluation, a Chicago-based condominium-rating service agency. Visit: www.AssociationEvaluation.com.
“If you are purchasing a condominium, your lender will need a lot of additional information about the association in order to assess your financial ability to repay the loan,” Benson warned.
“Know Before You Owe,” the government’s new TRID website explains the new disclosure forms to real estate professionals—Realtors and lenders. It also includes “Your Home Loan Tool Kit,” a 26-page, step-by-step, home-loan application guide for consumers.
For more information, visit: http://www.consumerfinance.gov/know-before-you-owe/real-estate-professionals/.
For more housing news, visit www.dondebat.biz. Don DeBat is co-author of “Escaping Condo Jail,” the ultimate survival guide for condominium living. Visit www.escapingcondojail.com.