One of the initial questions of most borrowers is “what will be my costs”? In an effort to curb what was viewed as consumer abuse in quoting rates and fees following the financial crises beginning in 2008, a new Good Faith Estimate form was introduced as of January 1, 2010. Touted as a way for borrowers to become more aware of the “actual” costs that accompany their loan, the form proved to be mostly ineffective.
The Consumer Financial Protection Bureau (CFPB) initiated a new disclosure process on October 3, 2015 that became known as the TILA-RESPA Integrated Disclosure (TRID) regulations. Promoted to the public as “Know Before You Owe” the process has also had its share of critics and it was revised following a June 2016 announcement by the CFPB.
The TRID rules mandate specific forms accompanied by time frames within which the disclosures must be made. The first disclosure, the Loan Estimate (LE) must be delivered to the borrower within three days of the lender having received the necessary documentation required to create a loan file. This initial LE provided the prospective borrower must be accurate (with a small margin of change for some of the loan costs, mainly the final amount of pre-paid interest and the insurance premium acquired by the borrower).
A lender is charged with acquiring the appropriate borrower documentation, verifying various fees with escrow and title companies, acquiring a credit report, creating the disclosures with borrower signatures and submitting the loan file within the 3 day time limitation. Given that borrowers are employed (in many cases would not otherwise be able to afford to purchase a home) accomplishing this task within the allotted time frame can be a challenge. After all the documentation is accumulated and submitted, the lender then sends the LE to the borrower who, in most cases, can authorized receipt via the internet.
An appraisal can be ordered only after the borrower has acknowledged the receipt of the LE. This generally means that the appraisal order is delayed at least three days while the initial disclosure process takes place. Ironically, while this procedure was created to assure greater borrower awareness of estimated closing costs, there seems to be little evidence that it succeeds. Many borrowers receive notice of the LE via email and immediately acknowledge receipt of it without actually printing it or even reading the information on line. Their desire is to “get along” with their loan request.
TRID also introduced a closing disclosure (CD) process designed for borrowers to check to make sure that the estimated closing costs identified in the LE have not significantly changed as the loan closing approaches. The time frame for this CD requires the borrower to acknowledge receipt of it at least three days before any transaction can close escrow. This Closing Disclosure is typically not released by the lender until all of the closing conditions have been met. Initially, this process often resulted in a last minute delay in closing the loan while this three day requirement was met. Lenders have now become more comfortable with the disclosure and this last minute disclosure seldom prevents a transaction from closing on time.
Borrowers may acknowledge receipt of the CD via their email and again in many cases the material is not read due to the eagerness to proceed to closing the transaction. So, while the intent of this legislation to make certain that borrowers were better informed and to hopefully eliminate some of the abusive practices of the past was laudable, we may be kidding ourselves that it is actually performing that task.
Never-the-less, the three day periods at the beginning and closing of a home loan are conditions which have to be accommodated when determining a home loan time frame. The CFPB acknowledges that additional revisions are necessary to make the process more borrower friendly. The recent reductions in CFPB’s authority as a result of the Washington Administration edicts has delayed any “fixes” we might have been expecting.
The good news is that there has been a renewed emphasis on full disclosure and loan transparency. Many of the rascals have departed the industry. Ultimately, however, you are going to have to trust your instincts when selecting your mortgage originator. Be careful in your selection but not paranoid. See the link below when selecting a lender.