New TRID rules will affect real estate transactions
New disclosure rules are on the way, thanks to the Dodd Frank Wall Street Reform Act. TRID is the TILA-RESPA Integrated Disclosure Rule. It is administered by the Consumer Financial Protection Bureau and will likely go into effect on October 3rd nationwide for most home sales. It is attempting to simplify the transaction for consumers. TRID will affect most closed-end consumer loans for real estate.
TRID debuts two new forms and creates new waiting periods for closing most loans. The "Loan Estimate Disclosure Form" replaces the "Good Faith Estimate" and the "Truth in Lending" forms. This form must be given to the applicant within three business days of filing the application and then a seven business day waiting period starts. This period is mandatory before an applicant can sign the loan documents signaling their intent to proceed.
The applicant will see three interest rates in the Loan Estimate Disclosure: 1) the loan interest rate; 2) the Annual Percentage ate (APR); and 3) the total interest paid over the term of the loan as a percentage of the loan amount. You will also see in the estimate property taxes, homeowner insurance, Home Owners' Association dues, and late payment penalties.
The second form is the "Closing Disclosure" which replaces the "Truth in Lending" and "HUD-1" forms. It must show the transaction terms and cost and must be received by the applicant three business days before signing the loan docs.
The new forms gives borrowers the total monthly mortage payment and the total amount of cash needed to purchase the home; items not previously found on the old documents. This will improve clarity and reduce stress of the borrower.
The new three business day waiting period give borrowers a chance to read, understand and ask questions about the loan documents before signing final loan documents. In theor, this will give borrowers more time to shop lenders, rates and terms for their mortgage. These new rules will benefit consumers by supplying them more information, but it will take longer to process loans. Look for things to slow down when the new rules go into effect as lenders get used to them. Loans that previously closed in 30 days may take 45 to 60 days, or longer.