What Is a TRID Loan? The Mortgage Disclosure Rule Explained
Understand TRID: The mortgage disclosure rule designed to bring clarity and consumer protection to your home loan process.
Understanding TRID’s Purpose and Scope
The TILA-RESPA Integrated Disclosure (TRID) rule, implemented by the Consumer Financial Protection Bureau (CFPB), streamlines mortgage disclosures for consumers. Effective in 2015, it consolidated requirements from the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA). TRID’s primary aim is to provide clearer information about mortgage terms and costs, enabling consumers to make informed decisions.
TRID generally applies to most closed-end consumer credit transactions secured by real property. This includes residential mortgage loans for home purchases, refinances, and construction-to-permanent loans. The rule covers a significant portion of the mortgage market, ensuring a standardized approach to disclosure for these common transactions.
TRID does not apply to all loan types. For instance, home equity lines of credit (HELOCs), reverse mortgages, and loans for mobile homes not secured by real estate fall outside its scope. Commercial loans and certain specialized transactions are also exempt.
Key TRID Disclosures: Loan Estimate
The Loan Estimate (LE) is a standardized three-page form providing consumers with a clear summary of a loan’s terms and estimated costs. Lenders must issue this document to applicants shortly after they apply for a mortgage. It serves as an initial snapshot, allowing borrowers to compare offers from different lenders.
The LE details key loan aspects, including the loan amount, interest rate, and estimated monthly principal and interest payment. It also provides information on variable interest rates, balloon payments, and prepayment penalties. The LE outlines estimated taxes, insurance, and other assessments, giving a view of potential monthly housing expenses.
A significant portion of the Loan Estimate details estimated closing costs. This includes lender charges, such as origination fees and discount points, and costs for services the borrower can shop for, like appraisals or title insurance. The form also lists government recording fees and other charges, providing an estimated total cash needed to close the loan.
Key TRID Disclosures: Closing Disclosure
The Closing Disclosure (CD) is a five-page form providing the final statement of all loan terms and actual closing costs. This document is provided to consumers shortly before their loan closes, superseding the Loan Estimate. Its purpose is to present definitive figures, allowing borrowers to verify all details before signing.
The CD details final loan terms, including the exact interest rate, loan amount, and total monthly payment. It also provides a precise breakdown of all closing costs, distinguishing between costs paid by the borrower and seller. The form clearly states the total cash to close.
An important feature of the Closing Disclosure is its comparison section, showing how actual costs compare to the initial Loan Estimate. This section helps borrowers identify any significant changes in costs from the time they received the LE.
TRID’s Role in the Loan Process
TRID integrates the Loan Estimate and Closing Disclosure into specific points of the mortgage process, establishing mandatory waiting periods. Lenders must provide the Loan Estimate within three business days of receiving a mortgage loan application. This timing allows borrowers to review initial terms and costs before proceeding.
The Closing Disclosure must be provided to the consumer at least three business days before the loan’s consummation, when the borrower signs loan documents. This three-day waiting period gives the borrower sufficient time to review final figures, compare them to the Loan Estimate, and ask questions before becoming legally obligated.
TRID also incorporates “tolerance” rules limiting how much certain fees can increase between the Loan Estimate and Closing Disclosure. Some fees, like origination charges, have zero tolerance, meaning they cannot increase. Other fees, such as recording fees, may have a 10% tolerance, while some, like prepaid interest, have no tolerance limit. A new three-day waiting period for the Closing Disclosure is triggered if there are significant changes to loan terms, such as an increase in APR above a specified threshold, a prepayment penalty, or a change in loan product.