Beginning October 3, 2015, the Consumer Financial Protection Bureau began enforcing a new rule — the TILA-RESPA Integrated Disclosure (TRID) regulation, “Know Before You Owe” rule.
This regulation requires several documents be given to the homebuyer before closing. When a homebuyer applies for a new mortgage, the lender will give them a copy of the Your Home Loan Toolkit by the CFPB, outlining the steps in the mortgage application process. Additionally, the homebuyer should receive a Loan Estimate (LE) document from the lender containing information required by the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA) that lists the terms of the loan, including the interest rate and all closing costs, and the amount of cash it will be required to close the transaction.
The LE document will allow the homebuyer to shop around for a mortgage. The CFPB recommends that the borrower obtain LE documents from at least 3 different lenders.
At least 3 business days before closing, the homebuyer must also receive a Closing Disclosure that will list all of the costs and expenses that the borrower must pay at closing. The Closing Disclosure has the same format and lists much of the same information as the LE document, so the borrower should compare the Closing Disclosure with the LE to see if the interest rate or any of the fees or other expenses have changed.
Any changes in the Closing Disclosure that differ from the LE document but were not previously agreed to by the homebuyer will reset the 3-day disclosure period if there is an increase in fees or any additional fees or if the interest rate increases by more than 12.5 basis points for a fixed-rate loan or 25 basis points for a variable-rate loan.
Lower fees or a lower interest rate will not reset the disclosure period, since it benefits the buyer. The purpose of this change in rules is to prevent abuses by lenders, title companies, or real estate brokers from inserting new fees or increasing the fees or interest rate on closing day, when many documents have to be signed by the buyer to close the real estate transaction.
Resetting the disclosure period allows the buyer to adequately consider any changes or to consult with a lawyer concerning the changes. Buyers will be able to undo the loan if the new disclosure rules are not followed.
If you have any questions about your current or future real estate transaction, call our team of attorneys at the Kendrick Law Group and Champion Title & Closing to learn more or to obtain one of our customized closing guides.