How Will the CFPB and TRID Changes Affect Buying a Home?
The Consumer Financial Protection Bureau's (CFPB) Know Before You Owe mortgage initiative is about to change the home buying experience into what they are hoping is a more understandable process of getting a loan and closing on a new home. On October 3rd this initiative will change the disclosures used as well as change the timing of certain mortgage activities. As the CFPB's website states, "The Know Before You Owe mortgage initiative is designed to empower consumers with the information they need to make informed mortgage choices. It includes the implementation of the TILA-RESPA Integrated Disclosure Rule, which is often referred to as "TRID."
What is Changing?
- Definition of Loan Application
- New Forms
- Timing and Processes
What is the Consumer Financial Protection Bureau (CFPB)?
On their website the CFPB states they are a "21st century agency that helps consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives." The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act) established the CFPB.
Click on the image below to read more:
Ways to Help Speed the New Mortgage Process from the MBA
In attempt to keep buyers up to speed on the changes, the Mortgage Bankers Association (MBA) has put together an informative one page flyer detailing the new changes. Click the image below to view it or download it for future reference.
New Loan Documents Introduced
One of the goals of the Know Before You Owe mortgage initiative is to provide new disclosure that streamline the process. Essentially four documents have been combined into two documents. The Good Faith Estimate and the initial Truth-in-Lending (TIL) statement have been combined to create The Loan Estimate. The information on The Loan Estimate should reflect the particular loan you have discussed with your lender. It's important to check everything to make sure it is what you expected. Click on the image to the right to view a sample of the new Loan Estimate.
The HUD-1 Settlement Statement and the final Truth-In-lending (TIL) have been combined into The Closing Disclosure (click on the image to the left to view a sample Closing Disclosure). This form mirrors the information provided on the new Loan Estimate to make it easier for buyers to compare what they were first quoted and what the numbers are now at closing. Lenders are required to provide buyers with your Closing Disclosure three business days before they are scheduled to close on the home. Buyers now have a better opportunity to review the numbers, make sure that all the details are correct and request any changes
What is the New Definition of an Application?
Since the buyer's lender must provide a Loan Estimate within 3 days of receiving a loan application, it's important to understand what the new definition of a loan application is. The acronym ALIENS helps explain:
- Address of the subject property
- Loan amount requested
- Income of the consumer
- Estimated Value of the Property
- Name of the Consumer
- Social Security number to obtain credit report
A buyers request or inquiry for a loan does not become an official application until all of these items are provided.
Will the Changes Affect My Close of Escrow Date?
Until everyone gets used to the new procedures you may want to add some padding to your close of escrow date. If your scenario usually requires a 30 day close, a 45 day close might be wiser. As soon as the industry adjusts to the new documents and procedures buyers should see a return to a 30 day close. It is important to speak to your lender about the closing documents and any changes that you may make that may reset the clock for when you can close. Click on the image to the right to see the Closing Disclosure Timing calendar.
Changes that could reset the clock and trigger another 3 business-day wait include
- APR increase or decrease more than .125% from Loan Estimate (or .25% for loans with irregular payments or periods)
- Loan product change
- Prepayment penalty added
Should You Still Get Pre-Qualified or Pre-Approved?
Yes!! With all of the changes that the Know Before You Owe mortgage initiative is creating, it is imperative that buyers speak to a lender prior to viewing homes and investigate their mortgage choices first. The pre-application period gives buyers a chance to decide on a loan type and a down payment amount before starting the process of finding their home. Shop around and find the right program, pricing and mortgage professional for you.
Pre-qualifications and pre-approvals are unchanged by this new rule. A pre-qualification form is typically required along with an offer on a property, so speaking to a lender and being pre-qualified or pre-approved is essential to your home buying process. Once you have identified a property and provide your lender with more information, your application process will begin. As discussed earlier, the buyer's lender must provide the Loan Estimate within three days after the application date. You can request Loan Estimates from multiple lenders and compare the rates and terms.
Terms You Should Know
There are some important terms you should know for this new process:
- Business Days: For the purpose of providing the Closing Disclosure in a real estate transaction, business days include all calendar days except Sundays and the legal public holidays.
- Creditor: The CFPB broadly defines the lender as a creditor. Note: for the purpose of the new rules and to remain consistent with the current rules under the Truth-in-Lending Act, a person or entity that makes five or fewer mortgages in a calendar year is not considered a creditor.
- Consumer: Throughout the rules the borrower (buyer) is referred to as the consumer. There are also sellers involved in many real estate transactions, which the CFPB also defines as consumers. The focus of the new rules is for the borrower and nearly all of their references to the consumer translate to the borrower.
- Consummation: Consummation is the day the borrower becomes legally obligated under the loan, which would be the date of signing, even if the loans has a rescission period. The concept of a rescission is the borrower accepts the obligation and then later has an opportunity to rescind it.
Download Your Home Loan Toolkit
The CFPB has put together a Home Loan Toolkit for consumers. Click on the image to view the toolkit:
Download Your Mortgage Loan Closing Checklist
This is a another great resource for buyers! Click on the image below to view the checklist:
Make sure that your lender as well as your Realtor is educated and up to speed with the new forms and procedures.
Feel free to contact us with any questions at 623-252-9350, or use the contact form on our website.