Mortgages are complex and can entail perilous features. In order to better manage and simplify the mortgage disclosure process Congress decided to create 2 new, more uniform forms. The first of the forms is the Loan Estimate (LE); this disclosure is issued 3 business days after the application has been submitted. The loan estimate provides the borrower with important information including estimated interest rates, monthly payments, and estimated closing costs.
The second form that Congress introduced was the Closing Disclosure (CD). The closing disclosure is provided to the borrower 3 business days before closing. The closing disclosure breaks down the terms of the loan, what the projected monthly payments will be, and how much the borrower will have to pay in fees and other costs to get the mortgage. The loan estimate and closing disclosure both came to be required on all loans after October 3rd, 2015. The industry wide change was called TRID, Tila-Respa Integrated Disclosure.
The CFPB, Consumer Financial Protection Bureau, detailed a list of the specific benefits of the new forms:
· Paperwork has been dramatically thinned out because the number of disclosures that were combined into these 2 new forms.
· The forms use clearer language to help borrowers better understand the complicated loan process.
· The new forms are focused at highlighting the important information to the borrower- interest rate, monthly payments, and closing costs
· Breaking down the information about the cost of taxes and insurance and how the change in rate in the future could affect the borrower’s payments- better educating them about whether they can afford the loan.
· Detailing the risk and penalties that can come if they pay off a loan too early or increase the loan balance even when payments are made on time.
· Providing the closing disclosures 3 business days before closing gives the borrower time to compare the final terms and costs that were provided in the estimate and ask any questions before they go to the closing table.
Although TRID has limited the ability to close loans as fast as previously allowed, it has given the borrower more time to understand the obligations of their loan.