New Mortgage Disclosure Law and Its Effect

November 19, 2015

New Mortgage Disclosure Law and Its Effect

Early last month, new mortgage disclosure law has been laid out otherwise known as TRID (or TILA RESPA Integrated Disclosure Rule) and this has made mortgage paperwork simpler and easy to understand, however the downside is it makes the entire process slower. With the new rule, will this have any negative effect on the mortgage application process or will it be better?

For starters, let us try and see what the difference between the old and the new are. The reason for this new rule was to make it easier for consumers to understand and to make a comparison.

Instead of the 4 different disclosure forms, it has now been trimmed down into two which are namely:

· Loan Estimate

· Closing Disclosure

The Loan Estimate form has replaced the Good Faith Estimate and the initial Truth-In-Lending Disclosure, while the Closing Disclosure replaces the HUD-1 Settlement Statement and the final Truth-In-Lending statement.

So what’s the difference? The new rule is to simplify the loan closing process, while this may sound to be more positive on the consumer side; it is also aimed to make sure that consumers are able to make comparison and be able to prepare themselves better for their mortgage transactions. With the new forms, buyers will now be able to see exactly how much borrowers pay for each services separately which makes the comparison better and easier.

The process goes like this: borrowers will receive an initial Loan Estimate not later than three days after application. The document includes the following information – amount of the loan, interest rate, monthly payment, estimate of taxes and insurance as well as the required amount of cash to close. Instead of the usual 1 day, borrowers will now be given 3 days to review and sign the papers and accept the terms. In line with this, lenders are also required to provide borrowers with a Closing Disclosure which provides them the final costs before the closing date. With the new time frame and schedule, lenders will now have to mail their statements earlier so that consumers will be able to receive it 3 days before closing.

Another rule is that lenders will face penalty if they don’t provide the 3 day time frame for the consumers to review the documents, and they can’t rush the period even if the borrower is asking to speed up the process.

Such changes will trigger another 3 day period because it will require a new Closing Disclosure form:

· If the interest rate goes up by 0.125% or more on a fixed rate mortgage or 0.25% on a variable rate mortgage

· If the borrower wants to change from a fixed rate to a variable rate and vice versa

· If the loan is changed to include a prepayment penalty

To avoid any delays with the closing, it is best to not do anything with your credit score, at least before closing as this will cause to require a new Closing Disclosure statement and another 3 day waiting period.

In a nutshell, while this may or can cause a delay with the entire process it is still a good thing especially for consumers because they will be able to prepare better and read/ review their loan carefully instead of rushing or taking the plunge. As we all know, taking a mortgage is not a walk in the park and this process can make things easier for all of the consumers. It is just fair practice for everyone.

If you are planning on taking out a mortgage and have any questions about the new rules of the disclosure statement, it is best to speak to a professional and/ or clarify things to make sure that you are well- informed about the entire process.

Source: http://www.zillow.com/blog/mortgage-disclosure-form-delay-184050/

http://www.usatoday.com/story/money/personalfinance/2015/10/18/new-mortgage-disclosure-rule-consumer-lender-realtor/73082192/