New rule designed to make homebuying process easier to understand

• The new TILA-RESPA Integrated Disclosure Rule takes effect Oct. 3
• Two mortgage loan disclosure forms and waiting periods for closing most real estate loans will debut
• Loans may take longer to close once the rules are in effect

If you're buying or selling a home soon in the West Valley, you should know about TRID.

In all likelihood, beginning Oct. 3, the TILA-RESPA Integrated Disclosure Rule, or TRID, will be in effect for most house sales nationwide, administered by the Consumer Financial Protection Bureau.

Mandated by The Dodd Frank Wall Street Reform Act, which was enacted to help prevent financial and real estate meltdowns such as that brought on in 2007-08 with the Great Recession, CFPB is the governmental division created to address money and consumer finance issues.

"The new regulations completely transform both residential real estate lending and the process for closing residential real estate loans," said Anne McCauley, vice president and state manager, First American Title Insurance Company from its Scottsdale office.

"The intent is to make residential real estate transactions and lending easier to understand for homebuyers. The impact of the new forms and waiting periods will touch everyone involved in residential real estate transactions: real estate agents and brokers, lenders, title insurance and settlement service providers, homebuilders as well as homebuyers and sellers."

Designed to eliminate many of the complexities of the current process for the buyer, TRID affects most closed-end consumer loans secured by real estate, said Liz Recchia, a broker/owner of We Sell Real Estate in Phoenix.

Two new forms

TRID debuts two mortgage loan disclosure forms and installs new waiting periods for closing most real estate loans, including FNMA, Freddie, USDA, VA, FHA, other government-backed and conventional loans as well as private money and some owner-financed transactions, Recchia said.

The Loan Estimate Disclosure Form replaces the Good Faith Estimate and initial Truth in Lending disclosures, which remain for transactions through Oct. 2, unless changes or delays occur at the federal level.

This three-page form must be given to the borrower within three business days following a loan application, and a seven-business-day waiting period is mandatory before a borrower may sign loan docs after receiving the document and informs the lender of his or her intent to proceed.

"The loan estimate shows the borrower the sales price, loan term, type of loan and rate lock information," said Liz Recchia, broker/owner, We Sell Real Estate, LLC, Phoenix. "It also shows the loan amount, so borrowers will need to make sure it accurately reflects their available down payment."

The buyer will see three interest rates in the Loan Estimate Disclosure: the loan interest rate, the APR (annual percentage rate) and a new figure for most, the Total Interest Percentage, the total amount of interest paid over the term of the loan as a percentage of the loan amount.

Other important items listed in the estimate: property taxes, HOA and homeowners insurance, loan assumability, whether homeowner's insurance is required by the lender, late payment penalties and whether the lender intends to service the loan.

The second form, the Closing Disclosure, replaces the final Truth in Lending disclosures and HUD-1 and must show transaction terms and costs and must be received by the borrower three business days before he or she signs loan docs.

"Lenders are held to a very narrow range in which borrowers' costs must fall, so these will be very close to costs outlined in the loan estimate," Recchia said.

Welcome, but let's wait and see

Generally, the new rules are being welcomed by industry professionals.

"The existing good faith estimate was very confusing to borrowers and did not even show them a total monthly mortgage payment or the total amount of cash that they'd need to buy their home," said Ryan Halldorson, senior mortgage banker with V.I.P. Mortgage in Scottsdale. "The new Loan Estimate gives the borrower both of those important items in an easy to understand format."

The goal of TRID is clarity and disclosure and stress reduction.

"As of today, it is not uncommon for buyers to be rushed into signing their final closing documents at the last minute to try to meet a closing date," he said. "In many cases, the buyer would not even read the final docs or ask questions to fully understand what they are signing at close."

To avoid this pressure and rush, the three-business-day waiting period following the reception of the Closing Disclosure will be in effect.

"In this way, borrowers have a chance to ask questions about their loan prior to signing their final closing docs," he said.

However, many expect that the new rules will affect the efficiency of the program, at least initially.

"The theory behind TRID is that consumers will be given more time to comparison shop lenders, rates, and payback terms for their mortgages," said Richard V. Mack, an attorney with Manning & Kass, Ellrod, Ramirez, Trester in Scottsdale. "The objective for consumer fairness and information is a good one.

"However, the downside of that is that loans will take longer to process and may be more difficult, especially this fall. Loans that previously closed in 30 days may take 45 to 60 days or even longer now."

Brenda Smith, senior account manager with MGIC Investment Corporation in Phoenix, said she agrees there's a chance for the process to take longer, especially at first.

"However, hopefully the new disclosures will have no impact ultimately on how long it will take a consumer to close on a mortgage," she said. "The key will be good communication between the homebuyers and their loan officer on what is needed by when to best avoid delays or the need to redisclose."

Recchia also sees a likelihood of closings slowing in the fall, but also sees the payoff.

"Once things get easier with TRID, I think you will begin to see more buyers and sellers as people become more confident," she said.

For more information, see CFPB.org.