Understanding Your Rights When Submitting a Loan Application: The TILA-RESPA Integrated Disclosures (TRID) Rules
May 30, 2017The Truth in Lending Act, TILA, was enacted in the late 60's to protect consumers dealing with lenders and creditors. The Federal Reserve Board was responsible for implementing this law, whose most crucial aspect involved the type of information that needed to be disclosed to a loan applicant before issuing a credit, for example, the annual percentage rate or APR, the loan terms, and the total costs.
On the other hand, the Real Estate Settlement Procedures Act, otherwise known as RESPA, was passed in the mid 70's with the objective to protect homebuyers who needed to shop for lending services; it is applicable to all "federally related mortgage loans" with some exceptions. RESPA compels any lending institution or individual involved in the lending process to give borrowers timely disclosures on the costs and nature of the settlement process. This law also forbids harmful practices such as dual tracking and kickback and referral fees, while enforcing limits on the use of escrow accounts. RESPA basically states that you should be provided with all cost-related information before closing a deal on a home purchase. The body responsible for administering this law was the Department Housing and Urban Development.
Both laws were implemented through a set of required forms that overlapped in information, whose language was inconsistent, and therefore, confusing. This resulted in failure to achieve their objectives because consumers were not properly informed about the lending products they were acquiring and were not protected against illegal practices.
In 2010, the Dodd–Frank Wall Street Reform and Consumer Protection Act was enacted in response to the 2008 financial crisis. The Dodd-Frank, as it is commonly referred to, is a comprehensive financial legislation reform, created with the intention of decreasing risks in the US financial system. It set up new government agencies to manage several components of the law and various aspects of the banking system.
The Consumer Financial Protection Bureau (CFPB) was one of the institutions that resulted from this new legislative reform. It was created to "protect consumers from unfair, deceptive or abusive practices." The bureau is responsible for taking action against companies that take part in illegal practices, prevent predatory mortgage practices, and having consumers properly understand the terms of any mortgage before closing on the loan application.
To make the information more easily available, there are two key forms that lenders need to fill out and give to the buyer as of October 3, 2015; these forms are TILA-RESPA integrated disclosure forms:
The Loan Estimate offers homebuyers critical details about the loan they request. It must be provided by the lender within three business days of receiving an application. The Loan Estimate has important information about the costs the borrower will incur upon receiving the loan, such as estimated interest rate, monthly payment, and total closing costs. Additionally, it provides the homebuyer with information about the cost of taxes and insurance, while indicating how the interest rate and monthly payments could change in the future. This form also explains any other components such as a prepayment penalty or negative amortization. These should appear in the loan product description.
Aside from all the information that is provided on the Loan Estimate form, it is also written clearly to help consumers properly understand the terms of the mortgage; all lenders must use a standard form. This is also beneficial when comparing mortgage loans from different providers— you can easily learn the differences and decide which one is most convenient.
It is important to clarify that receiving the Loan Estimate does not mean that your mortgage application has been approved. It simply explains in a clear, concise way what the terms of the loan are, so the consumer can choose the lender that best suits their needs.
The Closing Disclosure Form consists of five pages that provide all the final details pertaining the mortgage a homebuyer has chosen to apply for. This form needs to be provided by the lender at least three days before closing the loan, so consumers have sufficient time to revise the terms and compare them with the loan estimate form they received and also ask any questions that may arise. The information shown in the closing disclosure form also includes a projection of the monthly payments, the amount of fees the borrower needs to pay, and other costs involved in the loan process.
Key Title & Escrow is a renowned title insurance company in Florida that can help you with your title and escrow needs. Give us a call at (305) 235-4571 or fill out the contact form. One of our representatives will be happy to answer any questions you may have. You can also follow us on your favorite social media: find us on Facebook as Key Title & Escrow or follow us on Twitter @KeyTitle_Escrow.