With the new TILA-RESPA Integrated Disclosures (TRID) going into effect Saturday, October 3, 2015, it is important for lenders and consumers alike to review the new forms and understand the timelines which will soon govern most consumer lending transactions secured by real property.
Effective October 3, 2015, TRID disclosure requirements will apply to the majority of closed-end consumer credit transactions secured by real property. The notable exceptions are home equity lines of credit, reverse mortgages, or loans secured by a mobile home.
Two forms created by the Consumer Finance Protection Bureau (CFPB) comprise the new TRID disclosure requirements: (1) Loan Estimate and (2) Closing Disclosure.
Loan Estimate [Sample Fixed Rate Loan Estimate]
The Loan Estimate (LE) replaces the Good Faith Estimate and Preliminary TILA forms.
The lender is required to provide the borrower the LE no later than the third business day after receiving a consumer’s application. An “application” is deemed submitted when a consumer provides their (1) name; (2) monthly income; (3) social security number; (4) property address; (5) estimated value of property; and (6) requested loan amount. A lender may add additional requirements for a credit decision, but not for providing the LE. Notably, the CFPB removed from definition of “application” the seventh “catch-all” provision encompassing “any other information deemed necessary by the loan originator.”
Closing Disclosure [Sample Fixed Rate Loan Closing Disclosure]
The Closing Disclosure (CD) supplants the HUD-1 and Final TILA disclosure. The CD must be provided to the borrower three business days before closing. A delay in providing the CD results in a delay in closing. In addition, any change in certain loan terms could also warrant an amended CD, which could likewise result in a delayed closing.
While the new forms have been championed by the CFPB as more consumer-friendly and easier to understand, lenders must be aware of potential pitfalls and exposure that the new forms bring. Both the LE and CD provide the consumer with direct communication with the CFPB—an open invitation for consumers to contact the Bureau with complaints regarding improper loan figures, confusing terms, or closing delays. The disclosures also require additional information not in the previous documents, including detailed interest rate lock information, specific loan comparison figures, and future refinance considerations. The strict timelines for the TRID disclosures could also result in exposure for lenders and problematic delays for consumers.
The clock is ticking. While lenders have prepared for the changes associated with the TRID rules, they must use these final 45 days to ensure a smooth transition towards compliance with the mandatory procedures. Meanwhile consumers should be prepared to arrive at closing in early October with new loan documents that provide direct communication with the CFPB.