Federal law has historically required lenders to provide two different disclosure forms to consumers applying for a mortgage. Two different Federal agencies developed these forms separately, under two Federal statutes: the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act of 1974 (RESPA). The information contained in these two forms was found to overlap and often be inconsistent. As a result, the forms were confusing, and consequently burdensome and difficult for lenders and settlement agents to explain. With that, TRID was ultimately born. The TRID rule is designed to provide a detailed explanation of how the forms should be filled out and used. Here are the highlights:
1) The Good Faith Estimate (GFE) and the initial Truth-in-Lending Disclosure (initial TIL) have been combined into a new form, called the Loan Estimate. Similar to those forms, the new Loan Estimate form is designed to provide disclosures that will be helpful to consumers in understanding the key features, costs, and risks of the mortgage loan for which they are applying. It must be provided to consumers no later than the third business day after they submit a loan application.
2) The HUD-1 and final Truth-in-Lending disclosure (final TIL and together with the initial TIL, the Truth-in-Lending forms) have been combined into another new form, the Closing Disclosure, which is designed to provide disclosures that will be helpful to consumers in understanding all of the costs of the transaction. This form must be provided to consumers at least three business days before consummation of the loan (stated another way, three days before closing).
Both the Loan Estimate and the Closing Disclosure employ clear language. They are specifically designed to make it easier for consumers to locate key information, such as interest rate, monthly payments, and costs to close the loan. These forms also provide more information to help consumers decide whether they can afford the loan and to facilitate comparison of the cost of different loan offers, including the cost of the loans over time.
This new rule applies to most closed-end consumer mortgages. It does not apply to home equity lines of credit, reverse mortgages, or mortgages secured by a mobile home or by a dwelling that is not attached to real property. The final rule also does not apply to loans made by persons who are not considered “creditors.”
There will be a steep learning curve surrounding TRID. Many details will become apparent as loan applications are processed and closings take place. Home buyers, agents, and loan originators will need to be aware of the changes and deadlines so that closings are not delayed.
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