Revised Mortgage Rule Extends Closing Period
The Consumer Financial Protection Bureau (CFPB) issued a final rule amending the Truth in Lending Act (TILA) and Real Estate Settlement Procedures Act (RESPA) called TRID (TILA/RESPA Integrated Disclosure rule). TRID was issued to make mortgage disclosures more consistent and to allow consumers to clearly be able to identify key information such as the interest rate, monthly payment, and costs to close the loan. It became effective for all mortgage applications received after October 3, 2015. The rule integrates disclosures previously required under these two Acts, changes the initial and closing disclosure requirements for lenders, and lengthens the process of closing a loan. For example, an individual applies for a mortgage loan, once the application has been received, the lender has 3 business days to deliver a Loan Estimate (previously required a Good-Faith Estimate and initial TILA disclosure) back to the individual. The Loan Estimate form is designed to help consumers understand the key features, costs, and risks of the mortgage loan they are applying for. The lender may not charge fees to the individual until they have received notification of intent to proceed, excluding reasonable charges to obtain a credit report. If there are changes to the Loan Estimate, the revised disclosure must be received by the consumer no later than 4 business days before consummation of the loan.
The Closing Disclosure (previously HUD-1 and final TILA disclosure) includes the actual terms and costs of the final mortgage loan. This disclosure must be received by the individual no later than 3 business days before consummation of the loan. If the actual terms or costs change prior to the closing date, a revised disclosure must be provided, and the 3 day period is restarted. The extended time period allows individuals to thoroughly review their closing disclosure form before they receive their settlement table, ask more questions, and generally become more familiar with their loan before closing.
According to EllieMae Origination Insight Report, the average application-to-closing period after implementation of this rule was 49 days (increase of 3 days from previous average). Consumers should anticipate an extended 3-5 day closing period as lenders implement the guidance and revised disclosures. This new guidance applies to closed-end consumer loans secured by real property. It does not apply to home equity lines of credit, reverse mortgages, or mortgages secured by a dwelling not attached to real property. For more information, please refer to www.consumerfinance.gov.