October 3 marked the day the mortgage process changed. According to Forbes, the new rules were first talked about in 2012. Now they have finally been completed and implemented by the Consumer Financial Protection Bureau.
The new rules are called TILA-RESPA Integrated Disclosure, or TRID. It is meant to make the mortgage process easier to understand and more transparent. This is done through two new forms, rules about timing and strict regulations about changes in estimates between the beginning and the end of the mortgage process.
Introducing the Loan Estimate and the Closing Disclosure
The forms eliminate the four complicated forms the process used to use, according to CNN Money. Now, homebuyers get one form at the beginning of the process and one at the end.
The form at the beginning is the Loan Estimate Form. It clearly lists the terms of a loan, including the amount, rate and how much it could increase by. It allows buyers to compare loans, giving them the opportunity to make an informed decision about the loan they choose. The form also gives them estimated closing costs.
The second form is the Closing Disclosure Form. It begins with information from the Loan Estimate Form so buyers know they are closing on the loan they initially agreed to, and are aware if any changes were made.
Three Days
The new rules dictate when forms are to be given to buyers. The Loan Estimate Form needs to be in the buyer's possession no more than three days after turning in a loan application. Buyers also need to have access to the Closing Disclosure Form no less than three days before closing.
This is meant to give buyers time to look over the document and ask any questions they may have. It also means terms can change at the last minute. The buyer knows exactly what he or she is agreeing to.
Steve Fingerman, E-Loans Mortgage president, told Inman one of the biggest impacts TRID will have on buyers and sellers is how much time it will take to secure a loan. The quickest loan turnaround time used to be 30 days. Now, Fingerman says it could take up to 45 days for that same loan.
Because of the rules concerning timing, Fingerman also says planning to sell and buy a home on the same day will be harder to arrange. For this, he advises sellers to work with the same lender as the buyer to help coordinate the transition.
Tolerance Levels
According to Inman, there are three levels of fee tolerances associated with TRID. They are different levels of severity and are determined based on whether a loan was agreed upon in good faith. Basically, lenders need to be as honest as possible with buyers. When things are hidden from the buyer, the lender is not acting in good faith. Therefore, he or she will be subjected to a fee - depending on the situation.
No or Unlimited Tolerance
The lowest level of severity is called no or unlimited tolerance. This means that lenders should be disclosing information in this category honestly, but many of the items are outside of a lender's control. Because of this, they will not be fined if a fee unexpectedly goes up. These include prepaid interest, property insurance premiums and any amount that is put into the escrow account.
10 Percent Cumulative Tolerance
The second level of tolerance is called 10 percent cumulative tolerance. This category consists of recording fees and third-party service fees. Recording fees refer to when the government has to record and file the loan and title agreements. Third-party service fees refer to services that have to be provided by someone other than the creditor. The creditor will give the buyer a list of options available and he or she then chooses one of the options.
If fees increase by more than 10 percent between recording and all third-party fees, the loan will not be considered to be made in good faith. Therefore, the creditor will be penalized. However, it's important to keep in mind that the total of all fees has to be under 10 percent; if the increase of an individual fee goes up more than 10 percent, but the total stays within the acceptable range, it won't be a problem.
It's also important to know that if the buyer decides to choose a third party for a required service who is not on the recommended list of parties provided by the creditor, that fee will be considered part of the no or unlimited tolerance category rather than the 10 percent cumulative category. This is because the lender wasn't able to disclose any information, good or bad, to the buyer.
Zero Tolerance
The final and most strict category is the zero tolerance category. Though the name sounds similar to no or unlimited tolerance, it is actually the opposite. Instead, the fees associated with this category are those fees which the borrower can't compare prices for. Because there is only one option for these services, creditors should be able to provide accurate numbers on these fees. Transfer taxes also fall under this category, which are implemented by the state or local government based on how much the loan or the sale costs.
TRID is sure to take some time to get used to for real estate agents, lenders, buyers and sellers. The rules are designed to make the mortgage process less complicated. In the long run, it should make the home buying process less stressful.