What the New Mortgage Closing Rule Means to You


A new rule is going into effect for mortgage closings as the Consumer Financial Protection Bureau’s (CFPB) “Know Before You Owe” initiative aims to simplify loan disclosures and help borrowers better understand their mortgage terms. Homebuyers might see longer loan processing periods, but they’ll also be less likely to experience last-minute loan drama (“Wait, what? That was a teaser interest rate?”).

What should you expect at the closing table, and how will the new regulation affect your homebuying experience? Here’s what it all means.

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The new mortgage closing docs explained

The TILA-RESPA Integrated Disclosure Rule, also known as TRID, is intended to go into effect on Oct. 3. It boils down loan disclosures to two main sets of documents, eight pages in all.

The loan estimate

You’ll receive the loan estimate once your loan is approved. It details the terms of your loan, including:

  • Expenses, with clear “yes” or “no” answers to important questions, such as whether an amount can increase after closing, whether or not your loan includes a prepayment penalty or a balloon payment, and what expenses are included in your escrow account
  • The projected monthly mortgage payment, including taxes, insurance and other assessments
  • Estimated closing costs and the amount of cash you’ll need to have on hand at the time of settlement
  • Information on services you can — and cannot — shop for, such as pest inspections, survey fees and the appraisal

The loan estimate also offers data that can help you compare one loan offer against another, including total costs, annual percentage rate (with fees) and the total amount of interest you’ll pay over the loan term, expressed as a percentage of your total loan amount.

The closing disclosure

The closing disclosure replaces the HUD-1 Settlement Statement and the Truth-In-Lending Statement. You’ll receive this document three days before your scheduled loan closing.

The closing disclosure provides the information from your loan estimate — such as the locked-in costs of your loan and exactly what you’ll need to pay at closing — in final form. You’ll want to make sure that you’re aware of any changes.

“The regulations add several well-defined, time-sensitive ‘control’ steps to the mortgage process,” says Sharon Voss, president of the Orlando Regional Realtor Association.

She adds that consumers should expect a longer closing process. “The new regulations will lengthen the standard closing time frame involving a mortgage from about 30 days to about 45 days,” she says.

What can cause a three-day delay

Under the new rule, a substantial change to the loan terms triggers a new three-day review. A change in the amount of a real estate agent’s commission, modifications to the escrow and adjustments to prorated payments for taxes and utilities and the like don’t qualify. The CFPB says only three things can reset the 72-hour clock:

  1. The APR (annual percentage rate) increases by more than 1/8 of a percentage point for fixed-rate loans or 1/4 of a percentage point for adjustable loans. But this is not new. Such rate changes have required a three-day notice since 2009.
  2. A prepayment penalty is added to the loan terms.
  3. The basic loan product changes, such as moving from a fixed-rate to an adjustable-rate loan or to an interest-only mortgage.

Mortgage lenders worry about the transition

Voss says that mortgage lenders have been helping real estate agents train for the changes. But are the lenders themselves prepared? A survey conducted at the end of September, just days before the new rule’s intended implementation, suggests there may be a few glitches in the transition.

One-third of lending firms surveyed by the Mortgage Bankers Association said they “have had insufficient time to test and integrate systems and train their employees.” And nearly half of the mortgage executives polled say they are concerned that the new systems and disclosures “will create significant problems for their customers,” including “significant numbers of home purchase transactions will blow up or close late, adding a cost burden to resolve.”

To ease the transition, the Mortgage Bankers Association is asking the CFPB for a 120-day enforcement grace period.

What you can do

The “Know Before You Owe” disclosure rule may simplify mortgage paperwork, but it doesn’t simplify the mortgage process itself. If you’re buying a house this fall, prepare for a longer closing process. You might want to adjust the term of your rate lock accordingly. And keep the lines of communication open with your lender and seller to avoid closing roadblocks.

Delays, even short ones, can put a buyer at a disadvantage to cash bidders in hot real estate markets. But understanding your loan terms can save you from headaches later.

Hal Bundrick is a staff writer at NerdWallet, a personal finance website. Email:hal@nerdwallet.com. Twitter: @halmbundrick

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