As a real estate agent, your clients expect you to guide them through the process of buying or selling a home. With new mortgage rules rolling out in the U.S. on October 3rd, you’re sure to get a lot of anxious phone calls from buyers and sellers concerned about how these new changes will affect them. Those of you in the U.S. have probably been following the TILA-RESPA Integrated Disclosure (TRID) carefully, waiting to see what will happen once the rules are in place.
Now that it’s finally here, you may be wondering whether you’re adequately prepared to address all your clients’ questions and concerns. To help you navigate this transformed lending environment, we’ve created this quick guide to “Know Before You Owe.” We’ve included some basic background information, as well as a list of resources you can refer to as you begin to incorporate the TRID rules into your business and marketing strategies.
The History Behind the New Rules
Previously, consumers applying for a home mortgage were supplied two different disclosures forms. The first form was based on Truth in Lending Act (TILA), and the second on the Real Estate Settlement Procedures Act of 1974 (RESPA). Both forms included similar language and inconsistent information, and the forms were heavily criticized for confusing borrowers.
Why New Mortgage Rules
The TRID rules are designed to provide a clear enumeration of all the costs and terms associated with a home loan. The Consumer Finance Protection Bureau (CFPB) determined that the previous forms were ineffective and needlessly complicated, leaving borrowers baffled and saddling lenders with tedious, sometimes repetitive, paperwork. The new mortgage rules have been revamped to streamline the mortgage process and provide consumers with clearer information as well as enough time to review the total costs of their mortgage before signing.
The TILA/RESPA Integration Disclosure Rule (TRID)
In June of this year, the CFPB announced the TRID rules would go into effect October 3, 2015. The new rules require one 5-page form designed to simplify the mortgage process and better inform borrowers of all their rights and responsibilities.
Under the TRID, the four disclosures that were previously required have been replaced. Mortgage companies will now only need to supply borrowers with a loan estimate and a closing disclosure. The loan estimate must be posted in the mail no ore than three days after the consumer’s completed mortgage application is received. The closing disclosure, which outlines the final loan transaction, must be supplied to the borrower at least three days before completion of the loan transaction.
Three Day Review
Under the new rules, lenders are required to give borrowers three days to review the Closing Disclosure. Any potential changes to an initial loan offer – like a modification of interest rates or a change in loan type – will restart the three-day review. It’s conceivable that these mortgage review requirements could push the waiting time between offer and closing to seven days or more. In anticipation of longer wait times, some agents advising customers that closings could take up to 45 days.
The New Loan Process
Under the new disclosure rules, the basic mortgage process will proceed as follows:
- Preapprovals and pre-qualifications will proceed as usual
- A loan estimate will initiate the application process
- The loan estimate must be provided by the lender within three business days of the loan application
- The borrower must give formal notice to the lender that they accept the terms of the loan
- After ten business days, the lender is no longer required to honor the terms of the original offer if formal notice has not been received from the borrower
- The Lender cannot request prepayment for any mortgage fees prior to loan processing
- The borrower must obtain the final Closing Disclosure at least three days prior to closing
“Know Before You Owe”
Some confusion and disarray should be expected as the mortgage industry adjusts to these new, stricter, loan compliance procedures. The biggest impact will be felt regarding the closing date, as the three-day waiting period and notification rule will affect the overall processing time.
The best way to deal with this uncertain climate is to keep the lines of communication open with your clients. Emphasize patience and make sure you have more than enough to time to complete all the necessary paperwork. Make sure your customers are aware that these new rules are designed to make the mortgage process more straightforward for consumers and assure them the industry will quickly adjust to these changes.
Resources for Agents
If you still need more information, the CFPB and the NAR have established an online toolkit for agents. Additionally, the National Association of REALTORS® has a survey of what other agents are doing to prepare for the new disclosure rules. You can also view an NAR webcast to learn about what you can expect with these changes, and the Mortgage Bankers Association has an online guide with loads of information for consumers and agents. The CFPB also has a website devoted to answering consumer questions about the new “Know Before You Owe” disclosure rules. Click here to learn more.
Are you ready for “Know Before You Owe?” Tell us how you plan to update your marketing strategies and client outreach in response to the TRID rules.
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