TILA-RESPA Integrated Disclosure | The US Consumer Financial Protection Bureau (CFPB) ordered an integration of the disclosures and regulations required by the Real Estate Settlement Procedures Act (RESPA) and the Truth in Lending Act (TILA). This is called TILA-RESPA Integrated Disclosure or TRID. Using the previous disclosures and adding the new requirements from the Dodd-Frank Act, these new forms merge the HUD-1 Settlement Statement, the Good Faith Estimate, and the Truth-in-Lending disclosure form into two new closing documents: the Loan Estimate and the Closing Disclosure. The use of these forms became official on October 3, 2015.
The new Loan Estimate (LE) combines the Good Faith Estimate (GFE) with the Truth in Lending Disclosure. It will tell borrowers what their mortgage payment will be and how much money they need to bring to the closing table. Lenders will be held accountable for the amount of these fees; some must be exact and others must come within 10%. The set of charges that must be exact include the lender’s fees, such as loan origination, processing, underwriting, discount points. If they increase by $1, the borrower is eligible for a full refund. For the fees that must be within 10% (such as recording fees or unaffiliated third-party fees), if the borrower is charged more than 10% they are eligible for a full refund. There are a variety of fees a lender won’t know the exact amounts for, such as the cost of property insurance and the amount of the home owner association fees. If these are incorrect, the lender can update them without penalty. Loan estimates are due to borrowers within 3 days of applying for the loan.
The Settlement Statement (HUD-1) will be combined with the final Closing Disclosure (CD). The Closing Disclosure must be received by the borrower 3 days prior to settlement. A waiver is possible for financial emergencies (impending foreclosure), but you can’t do this over the phone, it must be in writing and in the borrower’s own words. Most people will not be eligible for this waiver, so do not be surprised if your lender does not accept waivers.
The changes do not apply to Home Equity loans, HELOCs, and Reverse Mortgages.
What are the potential problems?
Last minute changes at the settlement table will be more difficult. Borrowers need to know 3 days in advance how much the transaction will cost. If something is discovered at the walkthrough that changes the cost of the transaction and the closing disclosure, that change will require lender approval. The borrower will receive another version of the Closing Disclosure and wait another 3 days before they can close.
It is important to note that this is not for any change. It most cases the Closing Document can be edited the day of closing.
There are 3 cases where you need to wait an extra 3 days:
- If the interest rate goes up by 0.8% on a fixed rate loan or 0.25% on a variable/adjustable rate.
- If the borrower changes their mind and want a fixed rate rather than an adjustable rate.
- If the investor tells the lender they want to add a prepayment penalty to the loan.
How do you prevent problems from occurring?
In the beginning, transactions may take longer than usual as lenders adjust to the new rules. It is even more important than usual during these next few weeks that you communicate early and often with your lender to make sure they have all of the information they need.
It may be wise to schedule two walkthroughs prior to settlement – one 7 days from closing to make sure there are no big property changes that might affect settlement and one immediately prior to closing to make sure there were no changes since the first walkthrough.
Want to know more? See CFPB’s Know Before You Owe information on their website.