What Borrowers Need to Know About New Mortgage Disclosure Rules

By Irina Shteynberg

The Consumer Financial Protection Bureau (“CFPB”) recently issued a new mortgage disclosure rule that combines mortgage disclosures established by the Truth-in-Lending Act (“TILA”) and the Real Estate Settlement Procedures Act (“RESPA”) into a single rule known as TILA-RESPA Integrated Disclosure (“TRID”) rule.  The TRID rule has been in effect since October 3, 2015.

The goal of the TRID rule is to promote clarity during the loan process by providing borrowers with accurate and consistent information in connection with different loan and settlement cost options offered by their lenders.

The TRID rule applies to most closed-end consumer credit transactions secured by real property (e.g., all lenders making mortgage loans, including community banks), but does not apply to chattel-dwelling loans (e.g., loans secured by a mobile home or by a dwelling not attached to real property).

The TRID rule has replaced the four disclosure forms previously used under TILA and RESPA with two new integrated forms: a Loan Estimate (“LE”) and a Closing Disclosure (“CD”).  Here are details on the new forms:

  • The LE, issued by the lender, contains the loan amount, loan term, interest rate, and monthly payment, and states whether any of these terms can change and whether a prepayment penalty or a balloon payment is applicable to the loan. Additionally, the total closing costs (e.g., the lender origination fees, taxes, governmental fees, any deposits and down payments, and seller credits) are specified to reflect the amount of money due at closing. The LE must be received by the borrower within three business days of the receipt of the borrower’s loan application or placed in the mail no later than the seventh business day before closing.  Other than a reasonable credit report fee, lenders cannot charge any fees until the LE has been provided to a borrower who has been advised that the application can proceed.
  • The CD, issued by the lender or its settlement agent, reiterates the LE information and specifies the settlement costs. For example, the CD contains a table comparing the estimated closing costs on the LE to the final costs contained on the CD.  This allows the borrower to review the fees, terms and any changes and to question the lender about them.  The CD must be provided to the borrower at least three business days prior to closing.  Certain changes, such as an APR increase of more than 1/8 of a percentage point for fixed rate loans or 1/4 of a point for adjustable rate loans, will trigger a new CD form to be prepared and a new three-day waiting period to begin prior to closing.  The same is true if a pre-payment penalty is added to the loan or if there is a change to the loan product, for example, a change from a variable to a fixed rate mortgage.  For any other changes, a new CD will be required, but no new waiting period is triggered, and the CD can be provided at closing.  If there are changes after closing which result in a change to the amount actually paid by the borrower from the amount disclosed in the final CD, a new CD may be required.

The TRID rule provides that the borrower can waive the seven-business-day waiting period after receiving the LE and the three-day waiting period after receiving the CD if the borrower has a “bona fide personal financial emergency,” which requires closing the transaction before the end of these waiting periods. While this term is not defined, the CFPB’s example sets a high bar, as it involves a borrower facing an imminent foreclosure sale of his or her home unless loan proceeds are available to the borrower during the respective waiting periods.

It is important to note that the TRID rule imposes significant liabilities on lenders and does not allow for much leeway or flexibility.  Because lenders face substantial penalties for violating the TRID disclosure requirements (e.g., from $5,000 per day for a violation to $1 million per day for known violations) and also may be required to refund the excess payment when the borrower’s costs involved in obtaining the loan exceed certain parameters for the costs specified in the LE, lenders will need to exercise extreme caution in complying with the TRID rule by scrutinizing any variations between the LE and the CD.  Therefore, borrowers should be prepared for delays, as any variation may have the potential to cause lenders to delay closing rather than incur any violation.

In order to expedite the closing process, a borrower must maintain communication with his or her lender during the loan process and should provide all documentation and closing information, including homeowner’s insurance, as early in the process as possible.  For example, in order for the lender to meet the timeline for providing the LE, all documents and charges that are related to the transaction should be submitted to the lender at least 10 days prior to closing.  Furthermore, to avoid last minute delays in connection with the issuance of the CD, which must be finalized within three-day period to prior to closing, the borrower should promptly notify the lender of any changes to the transaction, so that the lender has sufficient time to determine their impact on the terms of the loan and to update the CD.

To speak to a real estate transaction attorney about the TRID rule or other concerns regarding residential and commercial transactions, please contact Irina Shteynberg at Solomon Blum Heymann LLP.  Our corporate and transactional lawyers are experienced in providing counsel to clients in the US, offshore, and abroad.

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