RESPA and TILA: What Do the Changes Mean?

UPDATED: The Truth in Lending Act-Real Estate Settlement Procedures Act Integrated Disclosure Rule - let's just call it TRID, like everyone else - goes into effect on October 3. The deadline was extended back in July. Are you ready?

Original Post: If you’re in the market for a mortgage, you’ve probably heard about the changes to RESPA and TILA that will go into effect on August 1, 2015. No? What are RESPA and TILA? (Don’t worry. You’re not alone in not knowing.)

RESPA, or the Real Estate Settlement Procedures Act, is designed to protect you. It requires that lenders disclose the terms of your loan and restricts how much they can charge in fees. It was administered by Housing and Urban Development (HUD), but has been taken over by the Consumer Financial Protection Bureau (CFPB). In 2013, the CFPB proposed combining RESPA with the Truth in Lending Act (TILA), and making a few changes.

The simplest explanation is that, on August 1, the HUD-1 and Good Faith Estimate (GFE) forms will be replaced by the Loan Estimate and Closing Disclosure forms. Your lender will now be required to give these to you three days before closing. Big changes, like a change in your interest rate, will be harder to make, because any major change requires another three day waiting period. The National Association of Realtors is recommending that their realtors have all their clients’ ducks in a row sooner, to avoid last minute surprises.

What does this mean for you? Your loan may take a little longer to close, the NAR believes as much as 15 days longer, but knows that may be an overestimate. (The NAR has high standards for realtors they certify, and they like to be prepared, so you aren’t hit with any surprises.)

When asked about the changes, Dana Wolfe of Wolfe and Taylor, a 30-year veteran real estate broker, explained it like this,

“When you head into a closing, you’re setting off a domino effect. The sellers have their movers lined up, and they’ll be followed by the buyers’ movers. We’ll need to be prepared a little bit sooner, because a change could really mess up that domino effect, since changes will require a new three day waiting period.”

He also explained that he used to get closing documents from the lender several days in advance, and now tends to get them one day in advance. Maybe this is a function of the modern age, when communication is much faster than it used to be. You real estate veterans will remember the old days, when offices had answering services and, in some cases, mounted CB radios in agents’ cars. Remember how pagers changed that? And cell phones? Fax machines made a huge difference, and email has made things even more fast paced. This is a good thing, but when you’re making what is one of the biggest decisions you’re likely to make, putting the brakes on so you can think about how to navigate a turn is good, too.

In the end, the process won’t look so different to the consumer. Real estate professionals and mortgage lenders will be getting used to different forms, and most of them have been using the same forms throughout their entire careers, but the end result will be the same. You’ll get a home, and this way, you’ll know even more about exactly what you’re getting into. Congratulations!