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So for those of you who plan to obtain or refinance a mortgage NOW or have family members who are, please read this so that you know what to expect as the industry copes with the transition. Or read this just for fun and trot out your new-found knowledge at the next happy hour…

WHAT IT’S ABOUT

For the past 30 years, lenders have been required to provide 4 different disclosure forms to buyers applying for a mortgage, 2 at application and 2 at settlement. These forms were developed by two different federal agencies and, not surprisingly, contained overlapping information and confusing language. In addition, there were no penalties to hold a lender’s feet to the fire in getting estimates and closing figures to clients in an accurate or timely matter.

So for most mortgage applications made on or after October 3rd, all lenders will be working under TRID regulations, new guidelines that not only require cosmetic changes to consumer documents, but a fundamental change to mortgage operations. “Know before you owe” is the key objective. (Cocktail Hour Trivia Stumper: TRID is an acronym of mortgage acronyms. TRID = TILA-RESPA Integrated Disclosure)

NEW FORMS and BEHIND-THE-SCENES INFRASTRUCTURE

When you apply for a loan, or even just “shop” lenders, you will receive a single disclosure form called a LOAN ESTIMATE. The LOAN ESTIMATE is designed to help you understand the key features of the loan, the costs and the risks. It must be provided to you no later than 3 business days after you submit an application and most importantly, it imposes tolerance levels in the cost estimates that the lender must adhere to. For example, a lender cannot change a dime of its origination fee estimate (0% Tolerance – see below) between when you apply and when you close (assuming no changes are made to the loan terms) or it will face a stiff penalty. As a result of this, lenders and their underwriters have had to reengineer their back office workflows to ensure they will meet timelines and nail costs…

The real benefit of the new LOAN ESTIMATE is that borrowers will know exactly what to expect in clear language when they sit down with the closing attorney to sign mortgage papers.

And speaking of closing, lenders are required to give borrowers a CLOSING DISCLOSURE no less than three business days before settlement and are responsible for any errors in the materials. This again means lenders will be making a substantial overhaul to internal systems that track data and integrate with vendors involved in the process to manage the risk. Having the CLOSING DISCLOSE that many days before settlement is extremely helpful because I have, on many occasions, sat for hours with annoyed buyers and sellers waiting for lenders to make last minute corrections which could have been avoided if the package had been prepared much sooner.

With October 3rd around the corner, it is recommended that borrowers allow an extra 15 days to close financing transactions while the industry works out the kinks over the ensuing months. In other words, 30-day contracts should now be 45 days and 60-day contracts should aim to close in 75 days.

“The disclosers, deadlines and cost assurances are going to be a great benefit for buyers; it’s just going to take a little time for lenders and closing attorneys to work out all the details. For more information please visit this Consumer Protection Financial Bureau’s TRID page. It’s rather dry, but it is as close to the source as I can get so that you have all the facts in this important transition!” – Cynthia