Most people rely on a mortgage loan to purchase a home. There are many aspects to the application and home-buying process, including: getting pre-approved rather than waiting until making an offer on a specific property, ensuring your credit is up to par, and organizing all the necessary financial statements for an assessment by your mortgage lender. Many of us may not know about the regulations put in place throughout the years to protect borrowers. One of these is TRID.
The Consumer Financial Protection Bureau (CFPB)—a federal watchdog agency looking out for U.S. consumers' best interests, specifically when working with financial institutions—discusses TRID in its TILA-RESPA Integrated Disclosure guide. It explains how TRID combines the forms required by the Truth in Lending Act of 1968 (TILA) and the Real Estate Settlement Procedures Act of 1974 (RESPA).
TILA was passed to protect consumers “against inaccurate and unfair credit billing and credit card practices,” explains the Office of the Comptroller of the Currency (OCC), which is a part of the U.S. Department of Treasury. “It requires lenders to provide you with loan cost information so that you can comparison shop for certain types of loans,” the OCC continues.
As detailed in the Comptroller’s Handbook about RESPA, this act mandates “lenders, mortgage brokers, or servicers of home loans to provide borrowers with pertinent and timely disclosures regarding the nature and costs of the real estate settlement process.”
These aforementioned forms often caused confusion among consumers, due to "overlapping" information and "inconsistent" language, and were "burdensome" for lenders and settlement agents to provide and explain, notes the CFPB. As a result, they were merged together under the Dodd-Frank Wall Street Reform and Consumer Protection Act—a statute passed in July 2010 in response to the 2008 financial crisis.
Essentially, TRID requires mortgage lenders to utilize two, new, more comprehensible forms consumers can better understand.
“The first new form (the Loan Estimate) is designed to provide disclosures that will be helpful to consumers in understanding the key features, costs, and risks of the mortgage loan for which they are applying," it states. "The Loan Estimate must be provided to consumers no later than three business days after they submit a loan application.”
This must be given to the consumer three business days after the application receipt date, or sooner.
“The second form (the Closing Disclosure),” the CFPB continues, “is designed to provide disclosures that will be helpful to consumers in understanding all of the costs of the transaction. The Closing Disclosure must be provided to consumers three business days before they close on the loan.”
This second form must be given to the consumer three business days before the closing date, or sooner.
The Consumer Financial Protection Bureau also mentions that these revised forms aren’t always used. There are some instances today, for example, in which those from TILA and RESPA are still provided to consumers, specifically with the following types of loans/purchases:
Whatever type of mortgage loan you’re looking to obtain, it’s important to seek guidance from a knowledgeable mortgage lending company.
Contour Mortgage has been helping people become homeowners since 1993, and we’re dedicated to ensuring our clients completely understand the mortgage application and home-buying process. Contact us today to learn more about our services.