Ever since the big housing bust of 2008, the government has been creating new legislation and regulations to better protect consumers when it comes to home loans. Two years ago new rules were put together, known as the TRID rules as part of the Dodd-Frank Act, the main piece of legislation brought forth in response to the Great Recession. TRID refers to the Truth in Lending Act (TILA), and the Real Estate Settlement Procedures Act (RESPA) Integrated Disclosure rule. This rule requires all home loan lenders to provide two new standardized forms which fully disclose and explain all closing costs and loan parameters, including any future changes to monthly payments based on fluctuating parameters, such as an adjustable rate for your mortgage. You as the consumer now have the guaranteed right to Know Before You Owe.
Before the new forms took effective October 3rd 2015, lenders could adjust the closing costs for a variety of reasons right up to the point of signing documents. Prior to the Dodd-Frank Act, lenders were not required to fully explain or disclose exactly how a mortgage payment was slated to be changed due to specified terms, adjustments or even penalties. The looser requirements meant many people would unexpectedly owe thousands of dollars more than anticipated. Often this resulted in families unable to pay their mortgages, and this is one of the reasons so many families went into foreclosure. Now, you as the consumer will be given all known costs and calculations connected to a loan, no less than three days before you sign papers. This is for new loans and refinancing as well. With the required use of standardized forms, it will be easier to ensure all aspects are disclosed and to know that lenders are being compliant with the rule.
It has taken two years, and an extension to the effective date, for lenders to prepare their internal processes and systems to include the new forms. There are bound to be some that are still working out some last minute updates and adjusting to the change. For now, those that are not up to meeting the compliance regulations of the new Know Before You Owe rule, will be given corrective and diagnostic warnings, but eventually non-compliant lenders will face punitive actions. The goal of these new forms is to help protect you, all lenders are required to comply. One expected side effect of the new rule however is that there will be greater delays in getting loans processed. This is something you should take note of if you are ready to buy or refinance in the near future.
As lenders must now complete more specific calculations before a loan can closed, they will need more time to complete the loan process. Add to this the sheer number of loans coming through these companies at any given time, it is expected there will be a backlog of loan processing. But you can help minimize the chance of delays by first having all your documentation ready and up to date before you begin the loan process. Lenders needing to require additional data from consumers is one of the leading causes of delays in the loan process itself. With the possibility of loans taking up 60 or more days to complete, you may want to look into paying the extra fee for an extended rate lock. This will guarantee the interest rate on your loan at the start of the process for a longer period of time. Normally an interest rate is held for no more than a month. If you find yourself in a delayed situation you may end up with a higher interest rate which will mean a higher mortgage payment.
You deserve to be in the Know Before You Owe, and now you are guaranteed to have the information you need before closing your home loan. We at Haylen Group are here to help you with all of your real estate needs! If you are unsure what your options are, call Helen Chong at (408) 800-LIST or email at Helen@HaylenGroup.com. You can also visit us at our website for available listings and additional information.