June 19, 2016

The TILA-RESPA Integrated Disclosure Rule (TRID) was put into force on August 2015 by the Consumer Financial Protection Bureau (CFPB).  The documents required by TRID that were discussed in the first 3 parts of this series dealt with the relatively easy parts of the mortgage closing process: junk documents that require little attention once they are recognized as junk; educational documents that can be read at the borrower’s leisure; and future use documents that require only to be set aside in a place from which they can be retrieved when and if they are ever needed.                                       

The fourth category of documents is by far the most challenging. These are the transactional documents that indicate whether or not you are getting the deal you believe you negotiated or were promised.  

The TRID rule created 3 new transaction-related disclosures to replace 3 existing disclosures: 

·   The new “Loan Estimate” disclosure replaces the original Truth in Lending (TIL) and Good Faith Estimate (GFE) and must be provided to the borrower within 3 business days of application.

·   The new Written List of Providers is a list of service providers that the borrower can shop.  It is provided at the same time as the Loan Estimate.

·   The new “Closing Disclosure” replaces the old ‘final’ TIL and HUD-1 and must be received by the borrower at least 3 business days prior to closing. 

This is the most challenging part of the process because the stakes are high, the time pressures are severe, and the terms of the deal are subject to change as the transaction moves toward closing. As this happens, the Loan Estimate is revised.  

In the typical case, the first Loan Estimate is sent before the borrower’s property is appraised, and before the loan terms (interest rate and points) are locked. This usually results in a second disclosure following receipt of the appraisal, a third disclosure when the loan terms are locked, and sometimes a fourth disclosure if the loan terms change for some other reason. The Closing Disclosure should reflect the terms in the final Loan Estimate.  

TRID requires that the final Closing Disclosure be provided to borrowers a minimum of 3 business days prior to closing.  Borrowers should check the Closing Disclosure carefully as soon as they are received in order to avoid the pressure and inevitable errors that occur if they are read for the first time at the closing table. The focus of your examination should be the loan pricing information and other critical features of your loan. You want to assure yourself that the deal you are getting is the one you negotiated to receive. 

Here are a few of the items on the Closing Disclosure that deserve special attention.  If any of these items are not what you agreed to at the time your loan was locked, contact your lender immediately. 

·    Mortgage pricing: This is the rate and points that were agreed upon when you locked the loan.  They are disclosed in two separate places on the Closing Disclosure: the “Interest Rate” item in the “Loan Terms” section, and the “Points” item (usually the first line item) in the “Loan Costs” section.

·   Origination Fee: Also in the “Loan Costs” section.

·   Prepayment Penalty:  This item is in the “Loan Terms” section; if it is marked “YES” you will be subject to a penalty if you refinance, sell your home, or make accelerated payments during the specified time period.

·   Mortgage Insurance:  This is disclosed in the “Projected Payments” section and in the “Other Costs – Prepaids” sections. 

·   Demand Feature:  This is disclosed in the “Loan Disclosures” section.  If “Demand Feature” is checked, the loan probably has a    balloon payment, meaning that the remaining loan balance must be paid in full at some date. If you are not getting a balloon loan, you must find the entry in the note to see the conditions (if any) under which the lender can call the loan. If the right to call the loan is unconditional, demand that it be removed.

·   At the bottom of the “Summaries of Transactions” section is a line item labelled “Cash to Close from Borrower”.  If you agree with the amount you must provide a certified check for that amount at closing. 

Note that the difficulties involved in monitoring changes in the transactional documents would be substantially reduced if lenders reported the reasons for change whenever they issued a new Loan Estimate. TRID replaces the final Truth in Lending and HUD-1 disclosures with the single Closure Disclosure, but lenders will continue the practice of changing the deal and issuing new disclosures without explaining why. I have asked CFPB why they are not making the closing process significantly easier for borrowers by requiring lenders to explain why the terms of a deal have changed, but there has been no reply.