The Consumer Financial Protection Bureau overhauled the way mortgages are processed and disclosed to borrowers as of October 5, 2015. It introduced the TILA RESPA Integrated Disclosure Rule, or TRID.
The Truth in Lending Act (TILA) was enacted in 1968, and the Real Estate Settlement Procedures Act (RESPA) was enacted in 1974. Both had been the cornerstone of mortgages for decades and both were modified by TRID, which has become known as the "Know Before You Owe" mortgage disclosure rule.
Closing on Time With TRID
The purpose of TRID was to convey closing information more clearly and to simplify, but it's somewhat complicated. Many lenders warned clients that closings might be delayed because of TRID, but delays are typically caused by certain factors that can be avoided, such as:
- Changes in the purchase contract
- Failure of the borrower to respond in a timely manner
- Mortgage loan officer mistakes
- Title and escrow collaboration difficulties
The problem might be a combination of any or all of these factors. Not every mortgage loan officer is hands-on. Some rely solely on loan processors and other members of their team to understand TRID and to follow its procedures. As a practical matter, most mortgages close on time when they're properly managed.
The Closing Disclosure
This document replaces the HUD-1 and the Truth in Lending Disclosure. Its purpose is to help a borrower understand all the costs associated with a mortgage loan. This five-page form, some of which is very similar to the Loan Estimate, compares the terms of the Loan Estimate with the terms of the Closing Disclosure, side-by-side.
Some fees, such as those paid to the lender, can't vary at all. Other fees, such as recording charges and certain third-party fees selected by the borrower, can change, but only by 10%. Still other fees, such as impound accounts, can exceed the estimate without limitation.
The basic problem with this disclosure is that it contains some fees that are paid by the seller on behalf of the borrower. This can be confusing for borrowers because they aren't actually paid directly by them.
Borrowers can't sign loan documents unless they've received and signed the Closing Disclosure at least three business days beforehand. A new Closing Disclosure can be required if any changes are made to the loan during this time period, and this can extend the closing time period.
TRID defines a business day as "a day on which the creditor's offices are open to the public for carrying on substantially all of its business functions"
For example, you might discover a broken window when you conduct a final walkthrough of the property. This could be cause for a new Closing Disclosure if the seller agrees to offer you money to replace the glass, which would then add another three days to signing loan documents.
The Loan Estimate for TRID
The loan estimate is a three-page document designed to state the key features, costs, and risks of the mortgage. It's required to be delivered to borrowers within three days after receipt of the loan application.
The loan estimate explains the loan terms, mortgage payments, and costs at closing, and it lays out a slew of other costs as well. Many of them can't be changed. The most useful aspect of this document is that it shows borrowers an estimated total monthly payment that includes principal, interest, taxes, and insurance (PITI).
Ways Borrowers Can Avoid Delays
The best way to ensure a timely close is to select a qualified mortgage loan officer who thoroughly understands how TRID works and can explain every step of the process to you.
Your loan officer should also carefully vet the title and escrow company, since collaboration between the two is imperative. Loan officers and escrow officers who close a lot of transactions tend to use systems that prevent mistakes or errors.
Next, gather all your financial documents in advance and be prepared to send them to your lender. Lenders generally require complete tax returns and W-2s, copies of all bank statements, 30 days of payroll stubs or records, and a copy of your driver's license.
Complete all home inspections and make your request for repairs early enough in the process that any changes to the purchase contract won't delay your closing. You'll also want to decide when to lock in your loan.
A Final Word of Warning
Do not make any changes to your financial situation while you're waiting to close. Don't change your job. Don't buy a car. Don't make any major purchases whatsoever. You do not want to take on any additional debt. This was a bad idea before TRID, and it remains inadvisable.