Shopping for a mortgage can be one of the smartest moves a consumer can make in a lifetime, possibly saving thousands of dollars over the life of a home loan with a lower interest rate. It can also be stressful, confusing and time-consuming, factors that may lessen with new rules governing mortgage closing disclosures.
The new rules, known as TRID, were implemented by the Consumer Financial Protection Bureau on Oct. 3. The CFPB says the new mortgage disclosure forms established by the rules should help consumers save money when shopping for home loans by making it easier to more precisely know the loan's costs.
TRID stands for TILA-RESPA Integrated Disclosure. It simplifies the mortgage disclosure forms that have long been required under the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA).
Here's a rundown of the changes:
Fewer and easier forms
The new forms are easier to understand complicated mortgage terms, the CFPB says. The Loan Estimate form is meant to make it easier to shop and compare loan offers from many lenders. The CFPB recommends applying for loans from at least three lenders before choosing a mortgage.
"I think everybody likes the forms," says Melissa Kozicki, director of compliance for the Mortgage Builder division of Altisource (mortgagebuilder.com). They're simpler for consumers, though more complicated for lenders, Kozicki says.
The form layout is better, with formulas used better and a visual layout that's easier to digest, says Dave Jacobin, president of 1st Mariner Mortgage (1stmarinerbank.com) in Baltimore City.
"Simply put, everything fits on the form in a better looking way than it was formatted before," Jacobin says. "At a glance, it is easy to see the estimated closing costs and cash to close figures. It's good to have those numbers easily accessible to see what exactly needs to happen in order to do the deal from start to finish."
Closing costs fully explained
While the Loan Estimate form is used at the beginning of the loan process, when home shoppers have a specific home in mind, the Closing Disclosure is given to borrowers at the end when they're ready to close on a mortgage. It helps avoid costly surprises at the closing table and allows consumers to compare it to the Loan Estimate to see how the offer has changed.
The previous Good Faith Estimate that gave an estimate of settlement charges and loan terms was very confusing in estimating the amount of closing costs to be paid by the borrower, says Melissa Cohn, president of MC Home Loans (mchomeloans.com) in New York City.
Every fee is detailed, Cohn says. If the costs are underestimated, then the lender pays the difference, she says. Still, there may be some fee padding.
"Many lenders still pad some of the fees, just in case of any contingencies," she says.
While the Good Faith Estimate didn't show the total monthly payment or total amount of cash needed to complete the transaction - including down payment, closing cost, prepaid costs and other expenses - the new rule adds those elements to the new form, Jacobin says.
3-day waiting period
The new rules require a three-day waiting period between getting the Closing Disclosure and signing on the dotted line.
The goal is to give consumers time to make sure there aren't major changes from the deal offered on the Loan Estimate. It also gives them time to ask their lender about terms of the mortgage and to consult a lawyer or housing counselor.
The waiting period is meant to prevent "last-minute finagling," Cohn says.
The forced "reflection days" are good for consumers, Kozicki says.
"It doesn't matter if somebody was trying to rush them or not," she says. "you have to give them three days."
The downside is that last-minute changes can't be done anymore, such as anything that would affect the loan terms, fees and credits. If changes are made on the day of closing, everyone will have to wait three more days for another Closing Disclosure document, Cohn says.
Buyers may need to lock in loan terms for a week or two longer. A 60-day closing could now take 67 days, Cohn says. A 30-day closing could take 45.
"People should not lose their deals," she says of closing on a home purchase. "They do have the possibility of losing their rate lock."
The regulation changes will make the loan process smoother, with less confusion and error, Jacobin says, partly because the lender will have more responsibility. Instead of the title company being responsible for the Closing Disclosure, as it used to be, the lender is. The title company won't have to go back and forth with the lender on fees, he says.
Lenders will have to allow more time for their internal process, he says, so they can get the forms submitted by the new deadlines. In the long run, Jacobin says, it will increase clarity of the transaction and benefit everyone.
If the new rules work correctly, the benefits can only make home buying process a lot less stressful. That can be good for buyers, sellers and even lenders.