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What is the TRID Mortgage Rule?
The TILA-RESPA Integrated Disclosure Rule, typically known as TRID, was passed in 2013 and became effective October 3rd, 2015. TRID is also referred to as the "Know Before You Owe" rule because it addresses the information and knowledge borrowers should possess before they get a mortgage and start making monthly payments.
TRID applies to any consumer loan secured by real property including mortgages, construction loans, construction-to-permanent (C2P) loans and vacant land loans. Specifically, TRID covers loans on properties such as single family homes, condominiums, co-ops, manufactured homes attached to a permanent foundation, multifamily properties with up to four units and land on which you intend to build a home. TRID also applies to timeshare loans but the disclosure document delivery requirements are different than for other types of mortgages.
TRID does not apply to reverse mortgages, home equity lines of credit (HELOC) and mobile home loans. Additionally, TRID only applies to consumer loans and not commercial transactions such as acquiring land for the primary purpose of agriculture or for building a property with more than four units.
TRID regulates the mortgage process and dictates what information lenders are required to provide to borrowers and when they are required to provide it. TRID also regulates what fees and how much lenders can charge mortgage borrowers and how these fees can change over the course of the mortgage process. TRID was designed to help borrowers select the mortgage that is right for them and to protect them from getting ripped off by lenders.
The goal of TRID is to make sure borrowers have all the information necessary to make an informed decision about their mortgage and to ensure that lenders do not promise one thing at the beginning of the mortgage process to get a borrower’s business, such as a low interest rate or fees, and then deliver something different, such as a higher interest rate or fees, at the end of the process when the mortgage is about to close. This is called a “bait and switch” and is one of the lender tactics that TRID is designed to eliminate.
TRID essentially combines the two laws that had previously governed the mortgage process: the Truth-in-Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA). By combining two laws into one, the federal government is hoping to make the mortgage process more manageable and transparent for borrowers. In addition to combining the two laws into one, TRID consolidates the four disclosure documents required by the TILA and RESPA -- the Good Faith Estimate, the estimated and final Truth-in-Lending Statements and the HUD-1 Statement -- into two disclosure documents: the Loan Estimate and the Closing Disclosure.
- The Loan Estimate is provided by the lender to the borrower at the beginning of the mortgage process and outlines the key terms of the mortgage including interest rate, closing costs and mortgage features. The Loan Estimate must be delivered by the lender to the borrower in-person or by email or mail within three business days of the borrower submitting a mortgage application to the lender. In short, borrowers should use the Loan Estimate to compare lender proposals and decide if they want to move forward with the mortgage process. Submitting a mortgage application and receiving an Loan Estimate from a lender does not obligate the borrower to work with that lender.
- The Closing Disclosure is provided by the lender to the borrower at the end of the mortgage process and outlines the final, actual terms of the mortgage including interest rate and closing costs. The lender is required to provide the Closing Disclosure to the borrower in-person or by email or mail at least three days before the mortgage closes. Borrowers should compare the Closing Disclosure to the Loan Estimate to make sure that the final terms of the mortgage did not change, or increase, significantly as compared to the estimated terms provided at the beginning of the mortgage process. Comparing the Closing Disclosure to the Loan Estimate will help borrowers avoid a bait and switch by the lender. If the final interest interest rate or closing costs as disclosed in the Closing Disclosure increased significantly as compared to the Loan Estimate, ask the lender for an immediate explanation and if the explanation is not satisfactory, consider cancelling the mortgage.
Lender Fees Worksheet: although it is not required by TRID, you should also ask lenders for a Lender Fees Worksheet, which provides an additional, detailed breakdown of all the costs and expenses associated with a mortgage that you can use to compare lender proposals. The Lender Fees Worksheet may provide additional information that you can use to negotiate better mortgage terms. For example, you can use the worksheet to compare specific cost items, such as origination, appraisal, title and escrow fees, across multiple proposals and see if a lender is willing to match the lowest cost for an item.
According to TRID, lenders cannot charge borrowers a fee for submitting a mortgage application or for receiving a Loan Estimate. The only fee a lender can charge the borrower before providing the Loan Estimate is a small credit report fee ($10 - $30). In addition, lenders are not permitted to require you to provide documents that verify the information on your loan application before providing the Loan Estimate.
If used properly the Loan Estimate and Lender Fees Worksheet are highly valuable tools for borrowers to review proposals and negotiate the best terms for their mortgage. You should request the Loan Estimate and Lender Fees Worksheet when you interview lenders and request mortgage quotes from them. If a lender is unwilling to provide these documents at the time you submit a mortgage application or request a proposal, this raises a red flag and you should contact other lenders.
We recommend that you compare mortgage proposals from at least five lenders. Contact lenders in the table below to request loan terms. Shopping for your mortgage is the best way to find the lender and loan that are right for you.
Sources
“TILA-RESPA Integrated Disclosure rule.” Small Entity Compliance Guide. Consumer Financial Protection Bureau, October 2016. Web.
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