TRID for the Borrower – What it Means
In 2015, the TRID (also known as the ‘Know Before You Owe Rule’) Rule was implemented by the Consumer Financial Protection Bureau (CFPB) as a way to better inform and protect borrowers during the lending process. TRID (short for TILA-RESPA Integrated Disclosure) is the merging of the Truth In Lending Act and Real Estate Settlement Procedures Act that aims to make the mortgage process more streamlined and highly functioning for regulators, borrowers, and lenders. Its goal is to create a more informed and therefore better protected consumer through regulated time constraints and clear, comprehensible documents for the consumer-which is why the act has attained the nickname ‘Know Before You Owe’.
The change came in a time where transparency in every industry was essential for consumer trust and transaction, and when the Real Estate Industry had a need to shift priorities from stimulating the economy towards borrower comprehension in the lending process (seeing as it is one, if not THE biggest financial decisions they will make in their lives). The idea was that more time and more consumer-friendly documents will create breeding grounds for an all around more informed borrower.
So what specifically changed under the TILA Act, you ask? Not too much. Here are the biggest two changes in the process:
1) Loan Estimate – As Rayce Robinson explains, what was originally the Good Faith Estimate has now changed to become the “Loan Estimate” or LE. The LE is created at the beginning of the lending process following the application submission of the borrower to their preferred lender and provides potential borrowers with a clear and accurate disclosure of any estimated fees during the lending process. The LE breaks things down for the buyer as well as makes it easier for buyers to compare estimates between firms.
2) Closing Disclosure – The Closing Disclosure, or CD, replaces the HUD-1. The CD is a detailed and accurate disclosure of every fee needed to close. The main difference with the CD is that lenders are required to provide borrowers with the document 3 days prior to closing to give them adequate time to compare the document to the LE as well as ask any questions they may have. Since last minute changes tend to occur when buying a home, after the borrower signs off on the CD, the lender need not add additional 3 days for changes unless they fall under three exceptions. 1) The last minute change caused APR to become inaccurate, 2) Borrower wants to change loan program, or 3) a pre-payment penalty was added to the loan.
The idea was to integrate the 3 days, not add them – something that requires planning, focus, and organization from all parties involved in the lending process.
TRID was a refreshing change for the consumer in the Mortgage industry, and the biggest takeaway a potential borrower can get from the change is that there is more transparency in a more simplistic fashion. It is important to find a lender who is trained, has tested, and integrated TRID methods into their practice – and at Alpha Mortgage, our loan officers are trained, tested, integrated and PREPARED to provide you with the best experience possible. Contact us today!
*Note: If you are looking to secure Home Equity Lines of Credit (HELOCs), a reverse mortgage, or a mortgage secured by a mobile home or dwelling not attached to real property, it is important to recognize that TRID won’t apply to you. *
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