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The Nuts and Bolts of TILA-RESPA

The Consumer Financial Protection Bureau (CFPB) instituted the TILA-RESPA Integrated Disclosure rule (TRID) in October 2015—the biggest change in the history of mortgage lending. The goal? To provide consumers with more information so that they can make better decisions regarding home buying and mortgages. In a nutshell, the new rule consolidates and simplifies the required loan disclosures and alters the mortgage process deadlines. Since the rule changes the home-buying process, your real estate clients may look to you for information and advice. Make sure you are prepared to offer insight by brushing up on the basics of TRID, outlined below.

The new TILA-RESPA rule consolidates four documents into two

With the TILA-RESPA Integrated Disclosure rule, the Loan Estimate form replaces the old “Good Faith Estimate” and the initial “Truth-in-Lending (TIL)” statement. The Loan Estimate breaks down the most important elements of the transaction, and makes it much easier for buyers to compare offers from different lenders. Additionally, the Closing Disclosure form replaces the old “HUD-1 Settlement Statement” and the final “Truth-in-Lending (TIL)” statement.

The documents mirror each other and prominently display the most critical information the buyer needs to know.

Modifications to the mortgage loan process

The new TILA-RESPA rule has not affected pre-approvals and pre-qualifications. Clients should spend time early on talking to mortgage lenders, comparing loan types, and ensuring that they will receive adequate financing before they take the next step. When they have decided on a property and are ready to request estimates, lenders are required to submit a Loan Estimate within three days of receiving details about the buyer. Note: If the lender mails the document, it may take longer than three days to arrive.

From there, once buyers have chosen a loan, they must inform the lender that they intend to proceed with the loan—within 10 business days. This is important, because if your client fails to do so, the lender doesn’t have to honor the terms of the initial Loan Estimate, and the client may have to start the process all over again.

Lenders’ requirements for proving intent to proceed vary, so make sure your clients know what is expected of them from their chosen lender.

Lenders can’t charge fees until after clients indicate an intent to proceed

In the past, lenders requested post-dated checks and credit card information to cover mortgage application fees upfront. That is no longer allowed under the new TILA-RESPA Integrated Disclosure rule. Lenders cannot request payment information until they have sent a Loan Estimate and the client has agreed to proceed. One exception: reasonable fees for credit reports are still permissible.

Requirements vary from lender to lender, but your client may have to provide payments for loan processing fees, appraisals, and applications immediately following or during the intent to proceed stage. Lenders may require payment before moving forward in the process.

You will need to determine who is providing the Closing Disclosure Form (CDF)

In some cases, lenders—not settlement agents—will prepare and deliver the CDF to clients. However, practices vary from state to state and even lender to lender. Make sure you know who will provide it, when and how clients will receive it (e.g., in-person, electronically, or by mail), and how you should handle last-minute changes. Remember: No matter who prepares the document, the lender is responsible for confirming its accuracy and approving the final CDF.

Remember: The CDF must contain both the buyer’s and seller’s real estate brokerages’ and agents’ names, addresses, state license ID numbers, email addresses, and phone numbers. If that information is missing, closing will be delayed.

Changes may require a new Loan Estimate or CDF

If details provided about the property, client, or loan change or were wrong, the lender may issue a new Loan Estimate that could reflect new rates and terms, based on the revised information. For example, if a client changes the amount he or she expects to put down or the property’s appraisal is lower than expected, a new Loan Estimate will likely be issued.

Clients must receive the CDF three business days before closing

Lenders are required to make sure buyers have the CDF in their hands at least three days prior to closing, to ensure that buyers have adequate time to review the documents. While small changes are sometimes allowed, if the lender makes significant changes, clients receive an additional three-business-day period to review the documents. Clients cannot wave their right to the new review period.

Remember: Additional review periods should be a rare occurrence. Lenders should not be making drastic changes at the last minute.

Are you up to speed on the new TILA-RESPA rule? Take McKissock’s TILA-RESPA Integrated Disclosure Rule course to learn everything you need to know about this massive legislative change.