The government is trying its best to make the house buying process easier with changes in the mortgage disclosure process. With more transparency in the closing process and the documents involved, buyers can make a more informed decision about the house they are about to invest in. Here is a look at the new rules that are changing the process of mortgage disclosure.
Where are these new rules coming from?
The initiatives that are creating the new process of mortgage disclosure are the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA). These two regulations have been combined into a single initiative known as TRID. The TRID initiative is the basis for the new mortgage disclosure rules that are attempting to make the entire process simpler.
The organization that combined TILA and RESPAÂ is the Consumer Financial Protection Bureau (CFPB). All of the new disclosure forms come from this Bureau.
What is the Know Before You Owe initiative?
The new rules are coming from the Know Before You Owe initiative that replaces and consolidates the four disclosure forms that are normally associated with the real estate transaction into two forms. The two documents that now comprise the disclosure statements are the Loan Estimate and the Closing Disclosure. These two documents are made to be simple to understand without the aid of a professional. There are also new timing rules that give people more of an opportunity to read over these documents before the closing table negotiation.
The Know Before You Owe initiative was actually originally a part of the Dodd-Frank Act, in part an attempt to make real estate transactions far more transparent than they had been in the past.
When did this initiative take place?
The TRIDÂ initiative became official across the nation on October 3, 2015. Any transaction that involves a mortgage today will use the consolidated Closing Disclosure and Loan Estimate forms in place of the four forms that were normally used.
What are some of the other advantages of the new consolidated forms?
Aside from being easier to read and free of legalese, the new Closing Disclosure and Loan Estimate forms are now required to come to the seller in a more timely manner. After October 3, 2015, the new disclosure forms must be delivered to the appropriate party at least three business days ahead of the closing date. This is to give the seller and the buyer plenty of time to go over every detail associated with the property transfer, checking all calculations and determining final amounts for all line items before finalizing the sale.
The documents also do a great job of showcasing the exact amount of money exchanging hands and where that money goes. This is indispensable for any future action on the property, and the simple, straightforward nature of the forms will likely speed up record-keeping and future property transfers.
What can a buyer do with the new mortgage disclosure forms that was not easy to do before?
Because all of the relevant numbers are placed on the Closing Disclosure form alongside all of the estimates from the beginning of the process, it is easy to see where a calculation may have gone wrong. Buyers and sellers can now compare apples to apples across the Loan Estimate form and the Closing Disclosure form, viewing even the percentage increase or decrease in final tallies on line items versus their initial estimates.
There is also a mandatory additional three day waiting period if any large mistakes are found on the Closing Disclosure form. All parties are given a chance to review the new changes if anyone is dissatisfied with the statistics on the initial forms. Smaller changes do not require this additional three day waiting period, but it can be taken by either party if they feel as though they do not have enough time to go over the changes.
What has been the early effect of the TRID initiative?
The first results of the new consolidated forms are in, and surprisingly, the average time to close on a mortgage has increased. Although the consolidated Closing Disclosure and Loan Estimate forms are simpler, shorter and free of most real estate jargon, the industry still has to get over its learning curve for the new forms. Many agents have spent decades using older forms, and these agents are having trouble keeping up. Because anywhere from 80 to 90 percent of people who are transferring real estate from one party to another use agents, most of these consolidated documents are actually in the hands of agents, not buyers and sellers initially. The industry will have to get over its initial trepidation for the new initiative, most real estate professionals expect much better results are expected in the future.
Some lenders are also remiss to extend preapproval letters in the wake of these new forms. In a short term, this has caused some people with few problems, but this effect is also expected to go away as industry professionals navigate themselves over to the new forms.
2 Point Highlight
Buyers and sellers can now compare apples to apples across the Loan Estimate form and the Closing Disclosure form, viewing even the percentage increase or decrease in final tallies on line items versus their initial estimates.
Because anywhere from 80 to 90 percent of people who are transferring real estate from one party to another use agents, most of these consolidated documents are actually in the hands of agents, not buyers and sellers initially.
